Financial Services in Focus – Issue 71

By Vince Battaglia and Philip Hopley

In this edition, we outline ASIC’s actions and priorities in its Corporate Plan for 2022-2026 in each sub-sector and APRA’s Corporate Plan for 2022-2023, consider the Federal Government’s crypto-asset ‘token mapping’ consultation, 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, consumer credit, banking and other financial services regulation.

Financial products

Government consults on proposed amendments based on ALRC interim report into corporations and financial services law

On 24 August, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, announced that the Federal Government is consulting on exposure draft legislation prepared to reduce the complexity of Australia’s corporations and financial services law.

According to the Treasury and the explanatory draft memoranda:

1. the first suite of exposure draft materials relate to implementing various recommendations in relation to erroneous, redundant or ambiguous definitions in corporations law made by the Australian Law Reform Commission (ALRC) in Interim Report A of its Review of the Legislative Framework for Corporations and Financial Services Regulations (which is available on the ALRC’s website).  For more information on the interim report, see our earlier Issue 61; and
2. the second suite of exposure draft materials relate to moving matters currently in ASIC legislative instruments into the Corporations Act or the National Consumer Credit Protection Act 2009 (Cth).  These ASIC instruments are ASIC Class Order [CO 12/340] Proposed licensed trustee companies, ASIC Corporations (Financial Services Guide Given in a Time Critical Situation) Instrument 2022/498, ASIC Corporations (PDS Requirements for General Insurance Quotes) Instrument 2022/66, ASIC Corporations (Describing Debentures-Secured Notes) Instrument 2022/61, and ASIC Class Order [CO 14/41] Extension of transitional credit hardship provisions.

According to the Assistant Treasurer, the legislation represents the first tranche of improvements the Federal Government will progress to simplify corporations and financial services legislation.

Consultation closes on 20 September.

ASIC publishes actions and priorities in Corporate Plan for 2022-2026 for financial services generally

On 22 August, ASIC published its Corporate Plan 2022-26.

According to the Corporate Plan, ASIC’s core strategic actions in relation to financial services include:

1. continuing to oversee, collaborate and taking enforcement action with respect to sustainable finance practices;
2. supporting the development of an effective regulatory framework in relation to crypto-assets, assessing regulated documents of major crypto offerings and taking enforcement action;
3. pursuing a targeted, risk-based surveillance approach and taking enforcement action in relation to design and distribution obligations;
4. closely monitoring the operation of the new breach reporting regime, preparing ASIC’s first report on reportable situations and developing enhanced data analytics to address reported information; and
5. undertaking proactive supervisory actions and taking enforcement action in the context of cyber and operational resilience.

For more information about ASIC’s specific priorities and actions in relation to funds, superannuation, insurance, financial product advice, financial markets, consumer credit and banking industries, please see further below.

Federal Government announces crypto-asset ‘token mapping’ consultation

On 22 August, the Treasurer, Dr Jim Chalmers, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, and the Assistant Minister for Competition, Charities and Treasury, Dr Andrew Leigh, jointly announced that the Federal Government is ready to start consultation with stakeholders on a framework for managing crypto-assets.

The Ministers announced that Treasury will prioritise ‘token mapping’ work in 2022, which will help identify how crypto-assets and related services should be regulated, and that the aim will be to:

1. identify notable gaps in the regulatory framework;
2. progress work on a licensing framework;
3. review innovative organisational structures;
4. look at custody obligations for third party custodians of crypto-assets; and
5. provide additional consumer safeguards.

The Ministers explained that a public consultation paper on ‘token mapping’ will be released soon.

For more information, see our article.

ASIC updates industry on approach to new breach reporting regime

On 10 August, ASIC announced that, as part of its 2022-23 priorities, it will focus on improving the operation of the reportable situations regime.

ASIC will primarily focus on engaging with industry and setting expectations, and public reporting. This includes working with stakeholders and the Treasury to ensure the consistency and quality of reporting meets the policy objectives of the regime, as well as to improve the efficiency of ASIC’s data collection and analysis.

ASIC’s first public report, due to be published in October 2022, will include high-level insights into trends observed across the reports lodged by licensees during the period 1 October 2021 to 30 June 2022. This report will not name licensees nor refer to the nature or number of reports lodged by specific licensees. ASIC will consider its approach to the 2023 public report early next year, including whether that report should include a list of all licensees who have reported to ASIC during the period.

We have written about ASIC’s breach reporting regime here.

ASIC reminds entities about greenwashing guidance

On 9 August, ASIC published an article in relation to greenwashing or overstating green credentials. ASIC reminded entities of the recently issued ASIC Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products (INFO 271), and states that it expects issuers to review practices against the nine questions set out in INFO 271 to ensure investors have adequate information to make informed investment decisions. We have written about INFO 271.

ASIC states that greenwashing will remain a priority area of regulatory focus, and that it is continuing to monitor the market and look for misleading claims about sustainability-related investments.

ASIC publishes guidance about the Financial Services and Credit Panel

On 3 August, ASIC released new guidance about the Financial Services and Credit Panel (FSCP), including an update to ASIC Regulatory Guide 263 Financial Services and Credit Panel (RG 263) and the new ASIC Information Sheet 273 FSCP decisions: Your rights (INFO 273).

According to ASIC:

1. RG 263 provides an overview of the purposes and composition of the FSCP, an outline of the actions a sitting panel may take, as well as the FSCP’s processes and procedures around hearings, decisions and confidentiality; and
2. INFO 273 outlines the rights of financial advisers affected by an FSCP decision, including how to make an application to vary or revoke FSCP decisions and how to seek an independent review of FSCP decisions.

ASIC states that the FSCP, combined with its new warning and reprimand powers, enables ASIC to respond to a range of financial advice misconduct, including lower-level misconduct that may otherwise go unaddressed.

The updated guidance arise out of consultation conducted by ASIC in February and March (for more information, see our earlier Issue 63).  ASIC also published its response to the consultation.

Funds

ASIC publishes actions and priorities in Corporate Plan for 2022-2026 in relation to funds management

On 22 August, ASIC published its Corporate Plan 2022-26.

According to the Corporate Plan, ASIC’s priorities and actions in relation to funds management include:

1. overseeing sustainability-related disclosure and governance practices of managed funds;
2. conducting surveillance of a sample of target market determinations and taking enforcement action to address poor design and distribution of products;
3. taking enforcement action against misleading or deceptive conduct, inappropriate gamification, social trading and ‘finfluencer’ conduct;
4. enforcement action against mismanagement of high-risk property schemes;
5. conducting surveillance of the marketing of managed funds that are likely to appeal to retail and unsophisticated wholesale investors; and
6. implementing the corporate collective investment vehicle regime, and other priorities and actions in relation to breach reporting and cyber and operational resilience.

Superannuation

ASIC publishes actions and priorities in Corporate Plan for 2022-2026 in relation to superannuation

On 22 August, ASIC published its Corporate Plan 2022-26.

According to the Corporate Plan, ASIC’s priorities and actions in relation to superannuation include:

1. overseeing sustainability-related disclosure and governance practices of super funds;
2. conducting surveillance of super trustees’ distribution practices in relation to choice superannuation products, and examining the role of financial advisers and their licensees in the distribution of underperforming choice products;
3. conducting surveillance of a sample of target market determinations and taking enforcement action to address poor design and distribution of products; and
4. other priorities and actions in relation to breach reporting, cyber and operational resilience, the Financial Accountability Regime, trustee transparency, oversight of advice fee deductions, performance test failure communications, internal dispute resolution, the retirement income covenant, insurance in superannuation.

APRA and ASIC deliver speech on the retirement income covenant

On 17 August, APRA published a speech delivered by APRA and ASIC in relation to the retirement income covenant, and the collaboration of APRA and ASIC in relation to supporting the implementation of the covenant by trustees.

ASIC observed, in relation to the summaries that trustees have been required to publish on their websites, that:

1. trustees were clearly at different phases of their implementation of the covenant, and had different starting points, in terms of their existing focus and stated plans to expand their product and guidance offerings to members in future;
2. some summaries provided more detail on trustees’ current offerings and plans for expansion than others;
3. some trustees indicated in their summaries that they are in the process of developing new retirement income products;
4. it was positive to see some trustees taking the time to understand, research and engage with their members to form tailored cohorts and identify member needs in order to inform their strategies; and
5. some of the summaries were more detailed than others, more readable from a member perspective, or easier to find on the fund’s website.

ASIC and APRA acknowledged progress in the retirement incomes space, with many trustees appearing to be implementing the covenant in ways that reflect the circumstances of their members.

ASIC’s surveillance of internal dispute resolution in superannuation identifies concerns

On 10 August, ASIC published its observations on data collected during ASIC’s surveillance on superannuation trustees’ compliance with the new enforceable requirements relating to internal dispute resolution arrangements in ASIC Regulatory Guide 271 Internal dispute resolution.

ASIC states that superannuation trustees are being urged to review their internal dispute resolution arrangements after its surveillance found indicators of significant compliance issues. According to ASIC, its findings flagged issues in relation to:

1. recording of complaints;
2. response timeframes;
3. informing complainants of delays; and
4. process failures.

ASIC states that, in the next stage of the surveillance, it will check how relevant trustees are addressing the concerns identified so far and closely examine a smaller sub-set of trustees.

APRA publishes priorities in Corporate Plan for 2022-2023 for superannuation industry

On 8 August, APRA published its new Corporate Plan for 2022-2023.

According to its plan, APRA’s strategic priorities and key activities for the superannuation industry are to:

1. continue to rectify sub-standard practices through robust supervision, strengthening prudential standards and reinforcing minimum expectations in regard to:
   1. fund expenditure including trustees’ practices as they relate to their ‘best financial interests duty’ obligations;
   2. investment governance, successor fund transfers and financial resilience; and
   3. strategic planning and business performance review practices, insights and actions;
2. maintain momentum on eradicating unacceptable product performance by intensifying pressure on trustees to cease offering high-fee, poor performing products, and scrutinising choice products by:
   1. conducting annual legislated performance tests;
   2. continuing to publish MySuper and Choice heatmaps to support improved transparency, accountability and decision-making;
   3. heightened supervision of trustees of products that fail the performance test or otherwise demonstrate poor performance; and
   4. using prudential powers to take action against trustees where warranted; and
3. accelerate beneficial industry consolidation to establish viable and durable business models across the superannuation sector.

New superannuation industry supervision regulations registered

On 8 August, the Superannuation Industry (Supervision) Amendment (Your Future, Your Super-Addressing Underperformance in Superannuation) Regulations 2022 (Regulations) were registered.

According to the Explanatory Statement, the purpose of the Regulations is to is to amend the Superannuation Industry (Supervision) Regulations 1994 (the Principal Regulations) to defer the application date of the annual performance test to trustee-directed products for 12 months to 1 July 2023. The deferral allows extra time for public consultation on amendments required to be made to the Principal Regulations to clarify how the test will apply to trustee-directed products.

Insurance

APRA publishes general insurer reporting standards for cyclone and flood reinsurance pool

On 25 August, APRA announced that it has released final reporting standards for general insurers to support the operation of the Government’s cyclone and related flood damage reinsurance pool.  The reporting standards and APRA’s letter to general insurers are available on APRA’s website.

ASIC publishes actions and priorities in Corporate Plan for 2022-2026 in relation to the insurance

On 22 August, ASIC published its Corporate Plan 2022-26.

According to the Corporate Plan, ASIC’s priorities and actions in relation to insurance include:

1. continuing to work closely with APRA to implement the Financial Accountability Regime;
2. analysing, and taking enforcement action, in the context of general insurance claims handling;
3. engaging with, and taking enforcement action against, general insurers in relation to pricing practices; and
4. taking enforcement action to address poor design and distribution of products.

ASIC registers relief for incidental retail cover in business insurance contracts

On 16 August, ASIC announced that it has issued relief to insurers and brokers that offer retail insurance cover as part of bundled business insurance contracts. On 15 August, the ASIC Corporations (Incidental Retail cover) Instrument 2022/716 (Instrument) was registered for this purpose.

This relief, which will apply on an industry-wide basis for three years from 16 August 2022, will exempt insurers and brokers from complying with their retail client obligations in relation to disclosure, hawking and the design & distribution obligations regime.

Insurers and brokers looking to take advantage of this relief should review their sales practices and policy documents for compliance as ASIC is keen to ensure that only genuinely incidental cover is captured. This means that the incidental cover must not be offered on a standalone basis, be an optional extra or be subject to a separate premium.

APRA publishes priorities in Corporate Plan for 2022-2023 in relation to the insurance industry

On 8 August, APRA published its new Corporate Plan for 2022-2023.

According to its plan, APRA’s strategic priorities and key activities for the insurance industry are to:

1. strengthen governance, risk management and business strategy practices, including addressing deficiencies identified in self-assessments undertaken by general insurers and embedding new capital requirements for private health insurers;
2. maintain focus on promoting the sustainability of insurance products for the long-term benefit of consumers, including heightened attention on specific business lines where needed;
3. align the prudential framework with Australian Accounting Standard AASB17 Insurance Contracts, including implementing renewed data collections;
4. improve resilience and reduce the risk and impact of a disorderly exit of an insurer by ensuring effective continuity, recovery and resolution plans are in place.

Financial product advice

Government consults on financial adviser professional standards

On 23 August, the Treasury published a consultation paper seeking industry’s views on streamlining education requirements for financial advisers.  The consultation was announced earlier on 10 August by the Assistant Treasurer and Minister for Financial Services, Stephen Jones.

According to Treasury, the consultation paper implements an election commitment to remove the tertiary education requirements for financial advisers who had passed the exam, had 10 years’ experience and a clean record of financial practice.  The consultation paper also seeks feedback on how education standards for new entrants could be improved, allowing financial advice to continue to develop into a career of choice.

Consultation closes on 16 September.

ASIC publishes actions and priorities in Corporate Plan for 2022-2026 in relation to financial advisers

On 22 August, ASIC published its Corporate Plan 2022-26.

According to the Corporate Plan, ASIC’s priorities and actions in relation to financial advisers include:

1. examining the role of financial advisers and their licensees in the distribution of underperforming choice products;
2. facilitating the registration of relevant providers and engaging with licensees and advisers to understand they understand and comply with their new registration obligations;
3. administering the financial adviser exam and reviewing the Financial Advisers Register; and
4. operationalising the Financial Services and Credit Panel as the single disciplinary body for financial advisers.

Financial markets

ASIC publishes actions and priorities in Corporate Plan for 2022-2026 in relation to financial markets

On 22 August, ASIC published its Corporate Plan 2022-26.

According to the Corporate Plan, ASIC’s priorities and actions in relation to financial markets include:

1. closely supervising the ASX’s implementation of the CHESS replacement;
2. aligning over-the-counter derivatives trade reporting requirements in Australia with international requirements;
3. reviewing artificial intelligence and machine learning practices among market intermediaries and developing automated order processing rules and guidance for futures participants; and
4. conducting thematic reviews and targeted surveillances of market intermediaries’ marketing and distribution practices.

ASX outlines CHESS replacement rules amendments and other reminders

On 16 August, the ASX published Compliance Update no. 07/22. In its update, the ASX:

1. provided a reminder on the order in which Appendix 4D/E/F and associated documents should be released;
2. asked listed entities to bear in mind the timing requirements of ASX Listing Rules 15.1 and 15.1.7 when submitting draft notices of meetings for the ASX to review;
3. provided a reminder that annual listing fees for FY2023 were due on 31 July 2022;
4. outlined amendments to the ASX Settlement Operating Rules, ASX Clear Operating Rules, ASX Operating Rules and ASX Enforcement and Appeals Rulebook, to facilitate the implementation of the new system that will replace CHESS (for more information on the amendments, see our earlier Issue 69); and
5. provided a reminder of upcoming deadlines for periodic reports.

 

Consumer credit

ASIC publishes actions and priorities in Corporate Plan for 2022-2026 in relation to consumer credit

On 22 August, ASIC published its Corporate Plan 2022-26.

According to the Corporate Plan, ASIC’s priorities and actions in relation to the consumer credit industry include:

1. seeking further improvements to consumer outcomes in the credit sector by collecting data from credit card issuers, reviewing target market determinations and assessing consumer outcomes, and taking enforcement action to address poor design and distribution of products; and
2. reviewing the product governance arrangements of selected small amount credit and buy now pay later providers, including reviewing of how target market determinations were developed and the data and metrics that inform review triggers; and
3. taking action, including enforcement action, to protect financially vulnerable credit consumers.

 

Banking

ASIC publishes actions and priorities in Corporate Plan for 2022-2026 in relation to banking

On 22 August, ASIC published its Corporate Plan 2022-26.

According to the Corporate Plan, ASIC’s priorities and actions in relation to the banking industry include:

1. continuing to work closely with APRA to implement the Financial Accountability Regime;
2. taking action, including enforcement action, to protect financially vulnerable credit consumers;
3. engaging with and influencing ADIs to provide suitable banking products to Indigenous consumers; and
4. other priorities and actions in relation to breach reporting and cyber and operational resilience.

Treasury consults on amendment to ‘Open Banking’ CDR instrument

On 19 August, the Treasury commenced consultation on an amendment to the definition of ‘product’ in the ‘Open Banking’ designation instrument under the Consumer Data Right (CDR) regime.

According to the consultation paper, the proposed amendment is intended to ensure the definition of ‘product’ explicitly captures the full range of lease products offered by banks (irrespective of how these products are structured). The Treasury states that it does not consider the proposed change broadens the regime beyond what was recommended, or how it is currently operating in practice.

Consultation closes on 16 September.

APRA publishes final reporting standards as part of revised ADI capital framework

On 10 August, APRA announced that it has released the final reporting standards to support the updated capital adequacy and credit risk capital requirements for ADIs. The final reporting standards arise out of consultation conducted by APRA from April to June earlier this year (for more information, refer to our earlier Issue 66).

According to APRA, the reporting standards will accompany the new bank capital framework, which is designed to embed strong levels of capital and align Australian standards with the internationally agreed Basel III requirements. The standards, along with a letter to industry, draft taxonomy artefacts and non-confidential submissions, are available on APRA’s website.

APRA publishes priorities in Corporate Plan for 2022-2023 in relation to the banking industry

On 8 August, APRA published its new Corporate Plan for 2022-2023.

According to its plan, APRA’s strategic priorities and key activities for the banking industry are to:

1. ensure the ongoing resilience of banks through the delivery of core supervisory activities, with heightened vigilance on flow-through effects from COVID-19, geopolitical tensions, rising inflation and increasing interest rates;
2. embed key prudential reforms including “unquestionably strong” capital ratios, Basel III requirements and Prudential Standard CPS 511 Remuneration;
3. embed good governance, risk culture, remuneration and accountability (GCRA) practices across the banking industry, and share exploratory learnings from the climate vulnerability assessment;
4. upgrade the business continuity and contingency practices of banks with a focus on recovery planning, operational resilience, and critical function resolvability.

Other financial services regulation

ASIC capability review report

On 25 August, the Government tabled in parliament the Effectiveness and Capability Review of the Australian Securities and Investments Commission undertaken by the Financial Regulator Assessment Authority (FRAA).

This was the FRAA’s first report which assessed ASIC’s effectiveness and capability across strategic prioritisation, planning and decision making, surveillance and licensing.  The FRAA reported that ASIC is generally effective and capable in the areas reviewed, but made four recommendations:

1. ASIC requires a substantial uplift in its data and technology capability, which will involve cultural change.
2. ASIC should have a stronger focus across the organisation on enhancing the quality of its engagement with stakeholders.
3. ASIC should enhance its ability to measure its own effectiveness and capability and communicate the outcomes of such assessment transparently, both internally and externally.
4. ASIC should continue to broaden its mix of skill sets to ensure it can meet the current and future needs of the organisation.

In response, ASIC stated that it welcomed the report and acknowledges that ASIC has several initiatives underway that align to the FRAA’s recommendations.

In commenting on the report, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, stated that the Government supports the FRAA’s ongoing work to enhance the effectiveness and capability of our financial regulators.

Treasury consults on draft legislation on Consumer Data Right for non-bank lenders

On 19 August, the Assistant Treasurer Assistant Treasurer and Minister for Financial Services, Stephen Jones, announced that the Treasury has commenced consultation on a draft designation instrument to extend the Consumer Data Right (CDR) to non-bank lenders. The consultation follows the Treasury’s final sectoral assessment report recommending that the non-bank lending sector be designated for CDR.

The draft designation instrument and explanatory material are available on Treasury’s website.

Consultation closes on 16 September.

ASIC publishes report about investment behaviour

On 11 August, ASIC released a report setting out research fundings in relation to retail investor motivations, attitudes and behaviours in the period following the onset of the COVID-19 pandemic.

According to ASIC, the research set out in ASIC Report 735 Retail investor research has been informing ASIC’s work in the retail sector, including changing practices in retail product design and distribution, investor protection strategies and crypto-assets.

Treasury commences review into ASIC’s industry funding model

On 8 August, the Treasury published the terms of reference for a review of ASIC’s industry funding model (Review). According to the terms of reference, the Review will be forward-looking and focused on identifying any changes to the industry funding model that may be required to ensure the settings remain appropriate.

Treasury states that it will undertake a public consultation process later in the year which will provide an opportunity for stakeholders to provide input into the Review.

APRA publishes findings of latest climate risk self-assessment survey

On 4 August, APRA announced that it has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance and superannuation industries. The survey findings are available on APRA’s website.

According to APRA, the voluntary survey as designed to provide insights into how APRA-regulated entities are aligning their practices with the expectations set out in APRA Prudential Practice Guide CPG 229 Climate Change Financial Risks.