Financial Services in Focus – Issue 68

By Vince BattagliaHarry NewAdrian Verdnik, and Philip Hopley 

In this edition, we consider a significant case on whether litigation funding schemes are managed investment schemes, updates to several codes of practice in the areas of life insurance, general insurance, privacy and epayments, and much more.

Full Federal Court finds previous ruling classifying litigation funding schemes as managed investment schemes is ‘plainly wrong’

On 16 June, the Federal Court handed down a unanimous decision in LCM Funding Pty Ltd v Stanwell Corporation Limited [2022] FCAFC 103 (LCM Funding) which overturns its previous (majority) decision in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11 (Brookfield FC).

Brookfield FC held that a litigation funding scheme, having the characteristics identified in that case, was a managed investment scheme within the meaning of section 9 of the Corporations Act.

The Full Federal Court in LCM Funding held the reasoning of the majority in Brookfield FC as ‘plainly wrong’. The Court reasoned as follows (in addition to other points and observations being made):

  • Brookfield FC did not adequately take into account the purpose or objects of Chapter 5C of the Corporations Act and, in doing so, construed each individual element of the section 9 definition too broadly and in isolation from what could have been in the legislature’s contemplation of the purpose of the managed investment scheme provisions in the Corporations Act;
  • members of the litigation funding scheme did not ‘acquire rights (interests) to benefits produced by the scheme’; rather, the rights of the group members lie in their respective choses in action, which remain the property of the individual members at all times until they merge in settlement or judgment rather than at the start of the scheme;
  • the recovery of damages or compensation in the class action is not a ‘benefit’ produced by the ‘scheme’, but rather a consequence of a claim that exists separately from, and antecedent to, the ‘scheme’. While there were a number of promises given by individual group members, the purpose of giving those promises was not to produce financial benefits; it was for dealing with the financial benefits of individual claims for relief if and when they were produce; and
  • generally, the elements of the definition of managed investment scheme, and the requirements under Chapter 5C (including identifying the responsible entity of the scheme) and related obligations including the maintenance of a register of scheme members and the need to provide a Product Disclosure Statements, do not fit easily or could not easily be complied with in the content of a litigation funding scheme. That is, the fact that so many provisions relating to managed investment schemes under Chapter 5C of the Corporations Act are incapable of application or impossible for a typical litigation funding scheme to comply with is a strong indicator that the managed investment scheme regime under Chapter 5C of the Corporations Act was not intended to apply to litigation funding scheme.

ASIC releases guidance on avoiding ‘greenwashing’ for superannuation and managed funds

On 14 June, ASIC announced that, after having conducted a ‘greenwashing’ review of a sample of superannuation and investment products, it released a new information sheet which it states will help issuers avoid ‘greenwashing’ when offering or promoting sustainability-related products.

ASIC Information Sheet 271: How to avoid greenwashing when offering or promoting sustainability-related products outlines:

  • what greenwashing is and why it’s a concern to ASIC;
  • the current regulatory setting for communication about sustainability-related products; and
  • questions to consider when offering or promoting sustainability products.

ASIC also published new information on the Moneysmart website to help investors assess if their values and goals align with a sustainability-related or ESG product.

We provide more information in our earlier article.

ASIC extends relief from the need to provide shorter PDSs

On 9 June, ASIC released ASIC Corporations (Shorter PDS and Delivery of Accessible Financial Products Disclosure by Platform Operators and Superannuation Trustees) Instrument 2022/497 (Instrument). The Instrument consolidates and extends relief previously provided by the, now repealed, Class Orders [CO 12/749] Relief from the shorter Product Disclosure Statement regime, [CO 13/797] Platform operators and trustees of superannuation entities using an agent to deliver a Product Disclosure Statement, and ASIC Corporations (Superannuation: Investment Strategies) Instrument 2016/65.

According to the Instrument’s Explanatory Statement, it will provide, until 1 October 2027, relief relating to:

  • the shorter PDS regime for superannuation platforms, multi-funds and hedge funds;
  • the giving of PDSs for superannuation trustees who offer a choice of investment strategies; and
  • platform operators and trustees of superannuation entities delivering a PDS using an agent who is an AFS licensee or an authorised representative of an AFS licensee.

ASIC extends relief to up-to-date information in Financial Services Guides

On 9 June, ASIC released ASIC Corporations (Financial Services Guide Given in a Time Critical Situation) Instrument 2022/498 (Instrument). The Instrument extends relief previously provided under the, now repealed, Class Order [CO 12/417] Information in a Financial Services Guide given in a time-critical situation. According to the Explanatory Statement, the Instrument provides relief in a time critical situation from the requirement under section 941E of the Corporations Act that a Financial Services Guide be ‘up to date’ at the time it is given to the client.

This relief will expire on 1 October 2027.

ASIC announces changes to financial reporting for AFS licensees

On 3 June, ASIC announced that changes would be made to AFS licensees’ financial reporting requirements to include disclosure that is consistent with financial reports of other for-profit entities. This change means that the disclosure standards set by the Australian Accounting Standards Board for reports made by Chapter 2M for-profit companies will now apply to the Chapter 7 financial reports of most AFS licensees.

ASIC issues guidance on ‘useful’ and ‘meaningful’ financial reporting

On 1 June, ASIC urged those preparing half-year reports, along with auditors, to assess whether the companies’ reports provide useful and meaningful information. ASIC’s guidance lists the key areas for attention and has recommended directors and management assess how the current and future performance of their company may be affected by various changing circumstances.

We have previously written about the changes in a previous article.

APRA publishes updates to Your Future, Your Super FAQs

On 15 June, APRA announced that it published further FAQs to provide guidance on the Your Future, Your Super performance test. This test applies from 1 July 2021 to MySuper products, and from 1 July 2022 to trustee-directed products and, according to APRA, is intended to hold RSE licensees to account for underperformance through greater transparency and increased consequences.

View the updated Your Super Your Future FAQs.

APRA delays amendments to SPS 310

On 9 June, APRA announced that it released its response to the consultation on its proposed amendments to Prudential Standards SPS 310 Audit and Related Matters (SPS 310). The feedback has led to APRA deciding to delay the commencement of the proposed amendments to the financial year ending 30 June 2023.

ASIC extends relief from choice product dashboard requirements

On 9 June, ASIC released ASIC Corporations (In-use Notices for Employer-sponsored Superannuation and Superannuation Dashboards) Instrument 2022/496 (Instrument). The instrument consolidates and extends relief previously provided by the, now repealed, Class Orders [CO 14/443] Deferral of choice product dashboard and portfolio holdings disclosure regimes, [CO 13/1534] Deferral of Stronger Super amendments in relation to Product Disclosure Statement and periodic statement disclosure and [CO 12/415] In-use notices for employer-sponsored superannuation.

According to the Instrument’s Explanatory Statement, the Instrument will provide, until 1 October 2027, relief relating to:

  • lodge a single in-use notice for every PDS issued in relation to a standard employer-sponsored superannuation product if conditions are met;
  • include product dashboards with periodic statements sent to superannuation fund members if conditions are met; and
  • publish a product dashboard for a choice superannuation product.

APRA releases new prudential standard on insurance in superannuation

On 3 June, the Superannuation (prudential standard) determination No.1 of 2022 (Instrument) came into effect. The Instrument revokes and replaces the existing Prudential Standard SPS 250 Insurance in Superannuation (SPS 250) with a new version that revises prudential requirements for RSE licensees.

According to the Explanatory Statement to the Instrument, the new SPS 250 aims to support RSE licensees to deliver better outcomes for their members with respect to insurance arrangements, and ensure that any risks related to insurance arrangements for beneficiaries are appropriately considered and addressed.

The instrument commences on 1 July.

APRA and ASIC release new FAQs on the implementation of the retirement income covenant

On 1 June, APRA and ASIC issued a new set of frequently asked questions (FAQs) on the implementation of the retirement income covenant introduced by the Australian Government.

The FAQs follow the joint letter released in March 2022 containing APRA’s and ASIC’s expectations of RSE licensees in response to the covenant, which the regulators state they aim at assisting RSE licensees with the development of their retirement income strategies (which we reported on in Issue 64).

FSC publishes new Life Insurance Code of Practice

On 22 June, the Financial Services Council (FSC) published the new Life Insurance Code of Practice (Life Code), which is to take effect from 1 July 2023.

In announcing the release, the CEO of the FSC, Blake Briggs, commented that the new Life Code introduces a range of improved consumer protections, especially for claims – for example, by ensuring claimants are supported if they need to be interviewed and placing further restrictions on the use of surveillance.

There will also be greater support for vulnerable consumers, such as by defining gratuitous concurrence and ensuring consent is genuine for First Nations people, as well banning blanket mental health exclusions in the standard terms and conditions on all newly designed contracts.

The new Life Code includes an enhanced role for the Life Code Compliance Committee by providing the Committee with increased powers to impose sanctions for breaches, including potentially requiring a community benefit payment to a charity.

APRA proposes changes to general insurance reporting standards

On 16 June, APRA announced that it released proposed changes to six general insurance reporting standards. According to APRA, these standards are aimed at:

  • aligning the general insurance reporting framework with APRA’s clarification on reinsurance recoverables, issued in April 2022; and
  • introducing the Australian Reinsurance Pool Corporation definition of an ‘APRA authorised reinsurer’.

View the proposed changes.

APRA is seeking written submissions on these proposals by 30 June.

Thematic Inquiry Report into Implementation of the General Insurance Code of Practice released

On 10 June, the General Insurance Code Governance Committee (Committee) released its first thematic inquiry report into the implementation of the public-facing obligations of the 2020 General Insurance Code of Practice (Code). These obligations relate to making certain information publicly available, to provide specific support to consumers and to general promote the Code subscribers’ adoption of the Code.

The Committee found that four out of the 14 Code subscribers complied with all of the public-facing obligations. The Committee it is currently assessing the responses it has received from the non-compliant Code subscribers before determining whether a significant breach of the Code has occurred and whether to impose a sanction for this.

ASIC relieves authorised representatives from need to notify of sub-authorisations for claims handling and settling services

On 8 June, ASIC released ASIC Corporations (Notification of Authorised Representatives) Instrument 2022/301 (Instrument). The Instrument modifies section 916F(1) of the Corporations Act and relieves authorised representatives from the need to notify ASIC when sub-authorising employees to provide claims handling and settling services in relation to general or consumer credit insurance products.

In announcing the release, ASIC states that the administrative burden caused by requiring authorised representatives to notify ASIC of each sub-authorisation and change in details of employees would be burdensome for industry, while producing limited consumer benefit.

ASIC releases guidance on warnings and reprimands given to financial advisers

On 9 June, ASIC released a new information sheet on the requirement for ASIC to give warnings and reprimands to financial advisers in specified circumstances was introduced by the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (Cth).

Information Sheet 270 Warnings and reprimands explains:

  • what are warnings and reprimands;
  • when ASIC will give a warning or reprimand;
  • how ASIC will communicate a warning or reprimand;
  • when ASIC will provide procedural fairness, and
  • a financial adviser’s right of review.

ASX releases consultation paper on fallback rate provisions for 90 Bank Bill Futures

On 8 June, the ASX released a consultation paper on the fallback language to be applied to the Australia and New Zealand 90 Day Bank Bill Futures products in the event of permanent cessation of the three-month BBSW and/or BKBM benchmarks.

According to the ASX, the consultation will seek feedback on:

  • proposed fallback language to be included in the ASX 24 Operating Rules and Procedures; and
  • alternative fallback rates currently available and the level of detail participants require regarding the fallback rate and calculation ahead of any permanent cessation event.

Submissions are requested by 6 July.

ASIC amends market integrity rules

On 7 June, ASIC released ASIC Market Integrity Rules (Securities Markets and Futures Markets) Amendment Instrument 2022/329 which, according to the Explanatory Statement, amends the following instruments to include a specific commencement date:

  • ASIC Market Integrity Rules (Securities Markets) Amendment 2022/73;
  • ASIC Market Integrity Rules (Securities Markets and Futures Markets) Amendment Instrument 2022/74; and
  • ASIC Market Integrity Rules (Securities Markets and other ASIC-Made Rules) Amendment Instrument 2022/117.

ASIC clarifies market integrity rules

On 6 June, ASIC released ASIC Market Integrity Rules (Securities Markets) Determination 2022/482 (Determination) and ASIC Market Integrity Rules (Securities Markets) Repeal Instrument 2022/483 (Repeal Instrument).

The Determination and Repeal Instrument aim to clarify the market integrity rules set out in Chapter 6 of the ASIC Market Integrity Rules (Securities Markets) 2017 (Rules), which relate to the pre-trading transparency of Orders and post-trade transparency of transactions executed on or reported to a Market, including in relation to Equity Market Products.

According to the Explanatory Statement for the Determination and the Repeal Instrument, the changes to the Rules are as follows:

  • the Determination determines, for the purposes of paragraph 6.2.1(1)(c) of the Rules and with effect from its commencement, the Tier 1 Equity Market Products and the Tier 2 Equity Market Products;
  • the Repeal Instrument repeals the ASIC Market Integrity Rules (Securities Markets) Determination 2022/134 (Superseded Determination); and
  • the Determination and the Repeal Instrument both maintain the existing policy settings under the Superseded Determination.

ASX issues response to issuer services discussion paper

On 1 June, the ASX released its response to the submissions that it had received on its Discussion Paper – Issuer Services: New Pricing (Discussion Paper). The response confirms that the ASX will proceed with implementing the fee changes that had been proposed in the Discussion Paper and that the changes will be effective from 1 July.

AUSTRAC issues new instrument on cross-border movement of funds

On 9 June, AUSTRAC issued Anti‑Money Laundering and Counter‑Terrorism Financing Rules Amendment (Cross‑border Movements) Instrument 2022 (Instrument). The Instrument was released in response to the Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Act 2020 (Cth) that came into effect on 17 June and amends Part 4 of the Anti-Money Laundering/Counter-Terrorism Financing Act 2006 (AML/CTF Act) and creates a single reporting requirement for cross-border movement of monetary instruments, including physical currency and BNIs.

According to the Explanatory Statement, the Instrument aids in the creation of this single reporting requirement by:

  • repealing the existing Chapter 24 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (AML/CTF Rules) for movements of physical currency into or out of Australia, and substituting Chapter 24;
  • repealing the existing Chapter 25 of the AML/CTF Rules for receipts of physical currency from outside Australia; and
  • repealing the existing Chapter 26 of the AML/CTF Rules for movements of bearer negotiable instruments into or out of Australia.

As explained in the Explanatory Statement, the new Chapter 24 sets out:

  • the information to be contained in a report about movement of monetary instruments into or out of Australia, submitted by a person moving the monetary instrument;
  • the information to be contained in a report about movement of monetary instruments moved into Australia, submitted by a person receiving or sending the monetary instrument; and
  • the timing rule for the submission of a report about movement of monetary instruments into or out of Australia.

Australian Information Commissioner approves replacement to the Privacy (Credit Reporting) Code

On 7 June, the Australian Information Commissioner approved a replacement to the Privacy (Credit Reporting) Code 2014 (Version 2.2) by introducing the Privacy (Credit Reporting) Code 2014 (Version 2.3) (Code). According to the Explanatory Statement, the Code:

  • maintains all of the substantive provisions outlining the rights and obligations of organisations and individuals that were included in version 2.2 of the Code; and
  • provides a high-level summary explanation of the provisions of Part IIIA of the Privacy Act that provide context for the credit reporting code obligations and requirements.

ASIC releases updated ePayments Code

On 2 June, ASIC announced that it released the updated ePayments Code. According to ASIC, the ePayments Code provides enhancements to and clarity on a number of existing protections for consumers. The new code can be found on ASIC’s website.

ASIC releases new and updated guidance for CCIVs

On 23 June, ASIC announced that it has released a range of documents to support the licensing and other requirements for CCIVs. According to ASIC, the materials will provide guidance to entities about CCIVs and sub-fund requirements, CCIV application processes, becoming a corporate director, as well as registering and operating the CCIV and sub-funds. These materials include ASIC Information Sheet 272 How to register a corporate collective investment vehicle and sub-fund, a report setting out ASIC’s response to consultation conducted on CCIVs, and updates to the following regulatory guides:

  1. ASIC Regulatory Guide 1 AFS Licensing Kit: Part 1 – Applying for and varying an AFS licence;
  2. ASIC Regulatory Guide 2 AFS Licensing Kit: Part 2 – Preparing your AFS licence or variation application;
  3. ASIC Regulatory Guide 3 AFS Licensing Kit: Part 3 – Preparing your additional proofs;
  4. ASIC Regulatory Guide 104 AFS licensing: Meeting the general obligations;
  5. ASIC Regulatory Guide 105 AFS licensing: Organisational competence;
  6. ASIC Regulatory Guide 132 Funds management: Compliance and oversight; and
  7. ASIC Regulatory Guide 133 Funds management and custodial services: Holding assets.

The updated guidance materials are available on ASIC's website. ASIC also explained that it will release a new legislative instrument and updated versions of other relevant regulatory guides.

We have previously written about the registration of CCIV regulations in Issue 65.

The requirements come into effect on 1 July.

This article was written with the assistance of Nancy Harb, Law Graduate.


You might be also interested in...

Financial Services | 20 Jun 2022

Changes to employee share scheme regulations: reducing the red tape for Australian businesses

Welcome changes are coming for small businesses and start-ups looking to implement employee share schemes.

Financial Services | 7 Jun 2022

ASIC issues guidance on what ‘useful’ and ‘meaningful’ financial reporting should include for the 30 June 2022 reporting period

We provide a summary of ASIC’s recent advice on areas companies should give particular consideration to as part of their reporting process.