Financial Services in Focus – Issue 72
By Vince Battaglia, Philip Hopley and Katelyn Free
In this edition, we consider the introduction of FAR legislation to Parliament, ASIC’s observations of superannuation target market determinations, the Treasury’s review of Your Future, Your Super measures, and much more.
Click on each heading below to read more about each of these areas: financial products, superannuation, insurance, financial product advice, financial markets, anti-money laundering, consumer credit, banking and other financial services regulation.
Financial products
Disclosure exemption for cases of family violence registered
On 26 September, the ASIC Corporations (Cash Settlement Fact Sheet and Confirming Transactions) Instrument 2022/809 was registered. According to the Explanatory Statement, the instrument creates an exemption for certain disclosure requirements in respect of insurance products where it is reasonably believed that giving the disclosure would pose an unacceptable risk of a person experiencing family violence (subject to a condition to keep a written record of reasons for the reasonable belief for three years). The exemption applies to:
- an entity that is required to provide a Cash Settlement Fact Sheet at the time of the cash settlement offer; and
- an entity that is required to provide confirmation of a transaction under section 1017F(2) of the
The instrument commenced on 27 September.
Financial Accountability Regime legislation introduced into Parliament
On 8 September, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, announced that legislation has been introduced into Parliament to implement recommendations to extend the Banking Executive Accountability Regime (BEAR) to all APRA-regulated entities.
On that day, the Financial Accountability Regime Bill 2022 and the Financial Sector Reform Bill 2022 were introduced into Parliament. According to the Explanatory Memorandum, together, the bills are intended to implement the new Financial Accountability Regime (FAR).
The FAR is an extension of the BEAR, which commenced in 2018 and is an accountability framework for directors and senior executives of ADIs and their subsidiaries. According to the Explanatory Memorandum, the FAR imposes a strengthened responsibility and accountability framework for entities in the banking, insurance and superannuation industries, and the directors and the most senior and influential executives of those institutions.
If passed, FAR will apply to the banking industry six months after the Financial Accountability Regime Bill 2022 commences, and will apply to the insurance and superannuation industries 18 months after commencement of that bill.
On 12 September, the Assistant Treasurer announced the release of exposure draft Financial Accountability Regime Minister Rules 2022 for public consultation, to support the bill.
Consultations close on 7 October.
ASIC remakes class order imposing financial requirements on retail OTC issuers
On 9 September, ASIC announced that it has remade the requirements under ASIC Class Order [CO 12/752] Financial requirements for retail OTC derivative issuers (Class Order) under a new instrument, ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022/705 (Instrument), which was registered on 7 September. The making of the Instrument follows public consultation undertaken by ASIC in July (for more information, see our earlier Issue 69).
The Instrument sets out financial requirements for issuers of over-the-counter (OTC) derivatives to retail clients. According to the Explanatory Statement, the Instrument remakes the Class Order with only minor drafting changes to reflect ASIC’s current style and format, remove redundant provisions and update definitions, while preserving the current effect of the Instrument.
The Instrument will be repealed on 1 October 2027.
Compensation Scheme of Last Resort legislation introduced to Parliament
On 8 September, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, announced that legislation has been introduced into Parliament to establish a Compensation Scheme of Last Resort (CSLR).
On that day, the Financial Sector Reform Bill 2022, Financial Services Compensation Scheme of Last Resort Levy Bill 2022 and Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022 (CSLR Legislation) were introduced into Parliament.
According to the Explanatory Memorandum to the bills, the CSLR Legislation together establish the Compensation Scheme of Last Resort (CSLR). The objective of the CSLR is to provide compensation to eligible consumers where they have an Australian Financial Complaints Authority determination in their favour and where the relevant financial firm has not paid the consumer in accordance with the determination.
On that day, the Treasury also published for consultation exposure draft regulations that are designed to support CSLR Legislation. Consultation closes on 7 October.
ASIC extends retail binary options ban
On 5 September, ASIC announced that it has extended its product intervention order banning the issue and distribution of binary options to retail clients until 1 October 2031. The decision follows public consultation conducted by ASIC from May to June on its proposal to extend the order (for more information, refer to our earlier Issue 67).
The extension is effected under ASIC Corporations (Product Intervention Order Extension-Binary Options) Instrument 2022/779, which was also registered that day.
According to ASIC, since the binary options ban came into effect on 3 May 2021, it has been fully effective in preventing retail clients from losing money trading binary options in Australia.
ASIC also released ASIC Report 736 Response to submissions on CP 362 Extension of the binary options product intervention order, which summarises ASIC’s analysis of the impact of the order and details ASIC’s response to issues raised in submissions to the earlier consultation.
ASIC warns brokers about offering high-risk products and services to retail investors
On 31 August, ASIC issued a warning to brokers to be careful about or reconsider offering high-risk products and services to retail investors, such as securities lending, crypto-assets and offers of ‘zero’ or ‘low-cost’ brokerage, where the true cost is masked. In particular, ASIC states that:
- ASIC will intervene or take action where it sees unfair or inappropriate offers of securities lending arrangements to retail clients;
- brokers should think very carefully before offering crypto-assets through their share trading apps where they are offered alongside shares and other regulated financial products;
- ASIC is concerned that ‘zero brokerage’ claims may not be true to label where the service is ‘bundled’ with other products or services that effectively subsidise brokerage and cause retail investors to take on additional risk, and such claims may be misleading or deceptive; and
- ASIC will take action when licensees fail to meet obligations to have adequate resources to monitor and supervise their representatives and to carefully review and engage with the design of new products or services.
Funds
Treasury consults on exposure draft regulations to reinstate litigation funding exemptions
On 2 September, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, and the Attorney-General, Mark Dreyfus, jointly announced that the Government has released draft regulations to reinstate exemptions from the AFSL managed investment scheme, and other regulatory regimes for litigation funders.
The exposure draft regulations are available on Treasury’s website. According to the exposure draft Explanatory Statement, the regulations clarify the status of the law following the case of LCM Funding Pty Ltd v Stanwell Corporation Limited [2022] FCAFC 103 (for more information, refer to our earlier article).
Consultation closes on 30 September.
Superannuation
Treasury consults on proposed regulations on faith-based superannuation products
On 12 September, the Assistant Treasurer, Stephen Jones, announced that the Government is commencing consultation on exposure draft regulations and an Explanatory Statement in relation to adjusting how faith-based products are treated under the Your Future, Your Super annual performance test. For more information on Treasury’s consultation on the exposure draft legislation, see our earlier Issue 70.
According to the Treasury, the exposure draft regulations:
- prescribe additional information that must be provided in an application for faith‑based product status;
- set out how APRA is to operate the supplementary performance test for these products; and
- set out when APRA must notify trustees of the supplementary test result.
Consultation closes on 7 October
Treasury consults on Your Future, Your Super measures
On 7 September, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, announced that the Government will commence a review of the Your Future, Your Super laws implemented last year under the Treasury Laws Amendment (Your Future, Your Super) Act 2021 (Cth).
On that day, the Treasury issued a consultation paper seeking feedback on unintended consequences and implementation issues arising from the Your Future, Your Super measures.
Consultation closes on 14 October.
AMM notice disclosure requirements updated
On 2 September, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, announced updated regulations relating to requirements for superannuation funds to disclose expenditures with the Annual Member’s Meeting (AMM) notice. The regulations arise out of public consultation undertaken by the Government in in July this year (for more information, refer to our earlier Issue 69).
The Superannuation Industry (Supervision) Amendment (Annual Members’ Meetings Notices) Regulations 2022 (Cth) were registered on that day. According to the Explanatory Statement, the regulations amend the Superannuation Industry (Supervision) Act 1993 (Cth) by updating the AMM notice disclosure requirements to improve member outcomes by providing members with simple and clear information.
The regulations commenced on 9 September.
APRA releases 2022 MySuper performance test results
On 31 August, APRA released the results of the second MySuper performance test.
APRA explained that it assessed 69 MySuper products with at least five years of performance history against an objective benchmark that assesses two components: investment performance, and fees and costs. The results of the test are available on APRA’s website.
ASIC publishes findings from review of superannuation target market determinations
On 29 August, ASIC published observations arising out of its review of a sample of target market determinations (TMD) prepared by superannuation trustees across the industry, retail, corporate and public sectors for both accumulation and retirement products.
According to ASIC, it observed issues related to:
- defining target markets;
- describing investment sub-markets;
- setting review triggers;
- setting review periods; and
- distributor complaint reporting.
ASIC states that superannuation trustees should review and, if necessary, improve the effectiveness of TMDs, and to not adopt a ‘set and forget’ approach. ASIC also stated that it is now focussing on compliance with design and distribution obligations, and will move to enforce the obligations where necessary.
APRA publishes consultation response paper on Phase 2 of the Superannuation Data Transformation project
On 29 August, APRA released a response paper to its consultation on the proposed scope and approach to Phase 2 of APRA’s Superannuation Data Transformation (SDT) project. The response paper arises out of consultation conducted by APRA in April and May earlier this year on Phase 2’s proposed scope, approach and timetable for introducing further enhancements to APRA’s superannuation data collections.
According to the APRA Response Paper Superannuation Data Transformation Project Phase 2, APRA states that it will now consult over four releases (rather than three), with the overall consultation period extended from nine months to 14 months (ending in April 2024).
The response paper, including the revised timeline, and non-confidential submissions are available on APRA’s website.
Insurance
ASIC publishes findings of review into individual disability income insurance claims
On 2 September, ASIC released a statement outlining the results of a review of nearly 4,800 individual disability income insurance claims received between 1 January and 30 June 2021. In publishing its findings, ASIC also noted that more work is needed by insurers to ensure that consumers are protected from unfair practices in non-disclosure investigations and physical surveillances.
ASIC stated that its latest review sought to test whether insurers were now entrenching good practices, especially with insurers now being subject to new claims handling obligations.
Financial product advice
Treasury issues Proposals Paper in Quality of Advice Review
On 29 August, the Treasury published a Proposals Paper as part of the Government’s Quality of Advice Review for public consultation.
According to the Treasury, the consultation seeks feedback on proposals for reform after considering feedback provided on the issues paper which was published earlier this year (for more information, refer to our earlier Issue 65).
Consultation closes on 23 September.
Financial markets
ASX reminds listed entities of ASX closures and ISIN arrangements
On 16 September, the ASX issued Compliance Update no. 08/22. In the update, the ASX:
- reminded listed entities that the ASX Trade Market and ASX Settlement will be closed on 22 September, and the impact of daylight saving on the opening of ASX Market Announcements;
- reminded listed entities to update their nominated ASX contact details, and that relevant nominated ASX contacts must complete the ASX Listing Rules compliance course; and
- noted that the allocation of Australian international securities identification numbers (or ‘ISINs’) are the responsibility of the ASX and to exercise caution when receiving communications from third parties in connection with ISIN maintenance.
ASIC continues existing policy settings for block trades
On 7 September, the ASIC Market Integrity Rules (Securities Markets) Determination 2022/787 (Determination) and ASIC Market Integrity Rules (Securities Markets) Repeal Instrument 2022/788 (Repeal Instrument) were registered.
According to the Explanatory Statement, the purpose of the Determination is to determine, for the purposes of paragraph 6.2.1(1)(c) of the ASIC Market Integrity Rules (Securities Markets) 2017, the Tier 1 Equity Market Products and the Tier 2 Equity Market Products. The Determination is relevant to specifying thresholds for a transaction to be a ‘block trade’.
The purpose of the Repeal Instrument is to repeal the previous determination, which will be superseded. The Determination, however, will maintain the existing policy settings under the superseded determination.
Anti-money laundering
AUSTRAC publishes new risk assessments and threat updates
On 26 September, AUSTRAC published:
- new resources for reporting entities in the bullion sector, including a money laundering/terrorism financing risk assessment;
- two money laundering/terrorism financing risk assessments for independent remittance dealers and for remittance network providers and their affiliates respectively; and
- an update on money laundering/terrorism financing threats associated with the superannuation sector.
AUSTRAC announces US sanctioning of crypto mixers
On 26 September, AUSTRAC announced that the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned two virtual currency mixers in an effort to combat money laundering and terrorism financing, namely Blender.io and Tornado Cash.
AUSTRAC reminded entities of its financial crime guide on digital currencies, and that the guide can assist in identifying whether enhanced customer due diligence needs to be undertaken and if a suspicious matter report needs to be submitted to AUSTRAC.
We have also written about OFAC’s sanction of Tornado Cash.
Instrument registered for reportable details for international funds transfer instructions
On 15 September, the Anti-Money Laundering and Counter‑Terrorism Financing Rules Amendment (Chapter 16 Amendments) Instrument 2022 was registered.
According to the explanatory statement, the effect of the amendment to Chapter 16 of the AML/CTF Rules will be that, in addition to the mandatory information, reports submitted to AUSTRAC may contain any other details present in the original funds transfer message, which is intended to facilitate international funds transfer instruction reports in the ISO 20022 format.
FATF updates on global ML/TF risk
On 31 August, AUSTRAC outlined two recent updates published by the Financial Action Task Force (FATF) relating to international money laundering/terrorism financing (ML/TF) risk. According to AUSTRAC, the FATF published:
- High-Risk Jurisdictions subject to a Call for Action, 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
- Jurisdictions under Increased Monitoring, which lists jurisdictions that have strategic deficiencies in their AML/CTF regimes and are actively working with the FATF to address them.
AUSTRAC states that reporting entities should be aware of countries that pose a higher risk of money laundering or terrorism financing and use this information to help guide ML/TF risk assessments, compliance programs and decisions about submitting suspicious matter reports to AUSTRAC.
Consumer credit
Consumer credit protection reforms introduced into Parliament
On 8 September, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, announced that legislation has been introduced into Parliament to implement new protections for consumers of high-cost credit products known as SACCs (Small Amount Credit Contracts) and consumer leases.
On that day, the Financial Sector Reform Bill 2022 was introduced into Parliament. According to the Explanatory Memorandum, the anti-avoidance measures are intended to commence the day after the bill receives Royal Assent, while the amendments generally commence six months after Royal Assent.
Banking
White paper on CBDC research project published
On 26 September, the Reserve Bank of Australia and the Digital Finance Cooperative Research Centre published a white paper setting out the objectives and approach of a research project to explore use cases for a central bank digital currency (CBDC) in Australia.
As set out in the introduction to the White Paper Australian CBDC Pilot for Digital Finance Innovation, the white paper describes relevant aspects of the research project as currently proposed by the project’s overseeing body. The white paper also invites submissions from industry participants about potential CBDC use cases and expressions of interest to operate their use case in the CBDC pilot project.
Consultation closes on 31 October.
RBA publishes its Corporate Plan 2022/23
On 31 August, the Reserve Bank of Australia (RBA) published its Corporate Plan 2022/23 (Corporate Plan). The Corporate Plan set out the RBA’s key objectives, the six strategic focus areas for the RBA to deliver on its objectives, as well as the key activities that the RBA will undertake.
Other financial services regulation
APRA publishes Information Paper on modernising the prudential architecture
On 12 September, APRA published an Information Paper outlining its plans for its multi-year program to modernise the architecture of prudential standards and guidance for banks, insurers and superannuation funds. It describes this as a core strategic initiative to make the design of the regulatory framework clearer, simpler and more adaptable.
APRA will achieve this through a series of initiatives focused on:
- better regulation – ensuring prudential standards and guidance are easier to navigate, understand and implement;
- digital first – exploring how to use technology to support better regulation; and
- new risks, new rules – developing new approaches to tackle emerging risks and new business models on the regulatory perimeter.
Consultation closes on 30 November.
APRA releases draft guidance on financial contingency and resolution planning
On 6 September, APRA released for consultation draft guidance which support APRA’s new prudential standards in relation to financial contingency and resolution planning.
According to APRA’s letter:
- draft APRA Prudential Practice Guide CPG 190 Financial Contingency Planning is intended to assist entities in meeting the key requirements of the proposed new prudential standard; and
- draft APRA Prudential Practice Guide CPG 900 Resolution Planning sets out a framework for how APRA expects to engage with entities in developing and implementing a resolution plan.
Consultation closes on 6 December.
Treasury consults on miscellaneous amendments to Treasury portfolio laws
On 2 September, the Treasury published for public consultation exposure draft legislative materials to make proposed minor and technical amendments to the Treasury portfolio laws.
According to the exposure draft explanatory material, the legislative package seeks to make a number of amendments including:
- in relation to financial advisors, making it clear that existing providers who do not pass the financial adviser exam by the relevant exam cut-off date and who ceased to be a relevant provider before the relevant exam cut-off date are eligible to be reauthorised to provide personal advice once they pass the exam and have until 1 January 2026 to meet the approved education requirements or courses;
- in relation to superannuation funds, amending the Superannuation Industry (Supervision) Act 1993 (Cth) to clarify that the licensee of a registrable superannuation entity can use technology to hold annual members’ meetings;
- in relation to corporate collective investment vehicles (CCIV), making amendments to ensure that the current listing-related obligations apply appropriately to the new CCIV regime; and
- in relation to mortgage brokers, ensuring mortgage aggregators are appropriately subject to the Reference Checking and Information Sharing Protocol.
Consultation closes on 29 September.
Treasury publishes its Corporate Plan 2022-23
On 31 August, the Treasury published its Corporate Plan 2022-23 (Corporate Plan). The Corporate Plan set out the Treasury’s priorities, its key activities and intended results and the Treasury’s focus areas to achieve those priorities.
Treasury releases draft laws on modernising business communications
On 29 August, the Treasury released for public consultation a draft bill and draft regulations which seek to:
- clarify that relevant Treasury portfolio regulators can hold hearings and examinations virtually. These amendments will ensure that hearings and examinations can be held quickly and efficiently for the benefit of all parties; and
- modernise business communications across a range of Treasury portfolio laws, including removing the previously proposed changes to credit laws which will instead be considered at a later date. The Assistant Treasurer and Minister for Financial Services, Stephen Jones, stated that the draft legislation is designed to give people more choices in how business relationships are conducted.
Consultation closes on 26 September.
Tax
Treasury consults on legislation excluding crypto from being taxed as foreign currency
On 6 September, the Treasury issued for public consultation exposure draft legislation that seeks to clarify that digital currencies (such as Bitcoin) continue to be excluded from the income tax treatment of foreign currency.
This follows the Government’s 22 June announcement that crypto assets such as Bitcoin would be excluded from being treated as a foreign currency for Australian income tax purposes. For more information, see our earlier Issue 69.
The Treasury Laws Amendment (Measures for Consultation) Bill 2022 and Explanatory Memorandum to the bill are available on Treasury’s website.
Consultation closes on 30 September.