Financial Services in Focus – Issue 73

By Vince Battaglia, Philip Hopley and Katelyn Free

In this edition, we outline ASIC’s updated and expanded remediation guidance, ASIC’s enforcement outcomes for the past year, the Consumer Data Right exposure draft legislation, and much more.

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

ASIC consults on modifications to the employee share schemes regime

On 29 September, ASIC released a consultation paper proposing to provide relief in relation to the employee share scheme (ESS) regime in Part 7.12 of the Corporations Act.

According to ASIC, the relief seeks to remove some unintended technical issues that may make it hard for some entities to rely on the regime. In particular, ASIC is concerned with listed entities that may find it difficult to make ESS offers if employees are unable to sell financial products that are in a class that is quoted.

Consultation Paper 364 Modifications to the ESS regime (CP 364) sets out ASIC’s proposals on:

  1. a broader exemption for secondary sales of financial products that are quoted on a financial market;
  2. the financial information provided by foreign companies;
  3. valuation information for financial products that are not ordinary shares; and
  4. technical relief so that salary sacrificing arrangements can comply with requirements for contribution plans.

The ESS regime takes effect on 1 October.

ASIC publishes updated and expanded remediation guidance

On 27 September, ASIC published updated and expanded regulatory guidance.

Regulatory Guide 277 Consumer remediation applies to both AFS licensees (including superannuation trustees) and Australian credit licensees. According to ASIC, it is underpinned by licensees’ legal obligation to operate efficiently, honestly and fairly and it embodies ASIC’s practical experience from monitoring remediations. The guide has been subject to an extensive two-year public consultation process with consumer and industry stakeholders.

ASIC expects to see industry applying the updated guidance to all new remediations going forward.

ASIC re-issues guidance on funds management

On 6 October, ASIC reissued the following regulatory guides on funds management:

  1. Regulatory Guide 131 Funds management: Establishing and registering a fund (RG 131);
  2. Regulatory Guide 134 Funds management: Constitutions (RG 134);
  3. Regulatory Guide 240 Hedge funds: Improving disclosure (RG 240); and
  4. Regulatory Guide 259 Risk management systems of fund operators (RG 259).

The updates are to support the licensing and other requirements for corporate collective investment vehicles (CCIVs) which came into effect on 1 July 2022, when the CCIVs regime commenced.

ASIC remakes business introduction services relief for managed investment schemes

On 30 September, ASIC announced it has extended the relief for business introduction services for registered managed investment schemes until 1 April 2025. The relief was due to expire on 1 October 2022. ASIC considers that the relief remains useful for registered managed investment schemes with fewer than 20 members seeking to raise up to $5 million.

The extended relief clarifies that the design and distribution obligations (DDO) apply to persons who, but for the relief, would otherwise need to comply with the DDO. ASIC has decided not to extend the same relief to business introduction services for companies on the basis that the crowd-sourced funding regime facilitates flexible and low-cost access to capital for small to medium sized unlisted companies.

ASIC states that it does not, at this stage, intend to remake the relief when it expires on 1 April 2025.

APRA’s revocation of superannuation standards and publication of FAQs regarding Superannuation Data Transformation project

On 17 October, APRA wrote to a letter to all registrable superannuation entity (RSE) licensees on the revocation of Superannuation Data Transformation (SDT) standards. The letter follows APRA’s Response Paper to consultation on Superannuation Data Transformation Phase 2, which was released on 29 August 2022.

On 12 October, APRA published additional frequently asked questions (FAQs) on the SDT reporting standards.

APRA article on how superannuation trustees can improve the management of outsourcing arrangements

On 5 October, APRA released an article How super trustees can improve management of outsourcing arrangements.

APRA states it conducted a thematic review of outsourcing arrangements in the superannuation industry, which found that since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry APRA considers trustees’ efforts have resulted in a stronger board oversight and monitoring of outsourcing arrangements and service providers, however, APRA considers there is more to be done and has identified some key areas for improvement.

APRA releases updated FAQs on superannuation heatmaps

On 5 October, APRA released new and updated frequently asked questions (FAQs) on the superannuation heatmaps. The FAQs are available on APRA’s website.

ASIC re-issues MySuper product dashboard requirements for superannuation trustees

On 30 September, ASIC reissued information sheet MySuper product dashboard requirements for superannuation trustees (INFO 170) to include updated guidance on how to disclose historical returns in circumstances where there has been a significant change to product design, strategy or governance in a MySuper product.

Additional changes include clarification on the disclosure required for the moving average return when disclosing the comparison between the return target and the returns for previous financial years, additional comments on APRA reporting standards and technical legal updates.

APRA aligns capital and reporting frameworks for insurance with AASB 17

On 27 September, APRA finalised changes to the capital and reporting frameworks for insurance in response to the introduction of the new accounting standard Australian Accounting Standards Board 17 Insurance Contracts (AASB 17). The changes aim to minimise any regulatory burden caused by a misalignment between APRA’s frameworks and AASB 17, while ensuring sound prudential outcomes.

The changes include:

  1. clarifications of the regulatory capital calculation given the introduction of AASB 17;
  2. clarifications to enable insurers to use the AASB 17 accounting policies and principles to report financial statement information to APRA;
  3. additional data reporting requirements to ensure APRA continues to have adequate data for capital assessments and profitability monitoring; and
  4. updates and clarifications to the Life and General Insurance Capital framework in order keep it fit for purpose, given the change in industry practices and operating environment over time.

The revised prudential and reporting standards will come into effect from 1 July 2023.

The response paper and the final standards are available on APRA’s website.

Insurance and banking prudential standard determinations registered

On 26 and 23 September, the Banking (prudential standard) determination No. 2 of 2022, Insurance (prudential standard) determination No. 6 of 2022, Life Insurance (prudential standard) determination No. 1 of 2022 and Health Insurance (prudential standard) determination No. 1 of 2022 (Determinations) were registered.

According to the Explanatory Statement, the purpose of the Determinations is to revoke the four existing definitions standards for banking and insurance, and replace them with corresponding standards which incorporate the appropriate amendments.

ASIC signs Consultation Agreement with Financial Markets Standards Board

On 29 September, ASIC announced it had signed a Consultation Agreement with the Financial Markets Standards Board (FMSB) to promote global standards for fair and effective wholesale financial markets. According to ASIC, the Agreement formalises ASIC’s active interest in the development of global industry standards.

The Agreement will facilitate the FMSB’s consultation with ASIC in the development of draft guidance and other publications and provide ASIC with periodic updates on the FMSB’s strategy. While the Agreement enables ASIC to observe open sessions of certain FMSB meetings, it does not constitute ASIC’s implicit or explicit endorsement of FMSB’s publications.

RBA releases 2022 Assessment of ASX Clearing and Settlement Facilities

On 28 September, the RBA released the 2022 Assessment of ASX Clearing and Settlement Facilities.  

The RBA concluded that ASX's clearing and settlement facilities have conducted their affairs in a way that promotes overall stability in the Australian financial system. However, ASX will need to place a high priority on addressing recommendations related to operational risk.

The assessment found that ASX also needs to make significant progress in addressing recommendations on governance and risk management. In addition, the RBA expects ASX to take a more proactive role in ensuring that its regulatory obligations are being met.         

ASIC releases 2021-22 Annual Report

On 14 October, ASIC released its Annual Report on ASIC’s key regulatory and enforcement outcomes for 2021-22.

In releasing the report, ASIC stated that one its priorities is to focus on greenwashing claims and crypto investment scams.

Telecommunications regulations following Optus data breach

On 6 October, the Government announced amendments to the Telecommunications Regulations 2021 designed to better protect consumers following the Optus data breach.

The Government will recommend to the Governor-General that the regulations be amended to allow Optus and other telcos to better coordinate with financial institutions, the Commonwealth, and states and territories, to detect and mitigate the risks of cyber security incidents, frauds, scams and other malicious cyber activities. The regulations cover financial institutions that are regulated by APRA, excluding branches of foreign banks.

The amendments will enable telecommunications companies to temporarily share approved government identifier information (such as driver’s licence, Medicare and passport numbers of affected customers) with regulated financial services entities to allow them to implement enhanced monitoring and safeguards for customers affected by the data breach.

According to the government, the proposed changes will also allow for increased fraud detection in the broader financial services sector through existing industry mechanisms to report fraudulent transactions, such as fraud information exchanges.

Australian Law Reform Commission releases Interim Report B

On 30 September, the Australian Law Reform Commission report, Financial Services Legislation: Interim Report B (Report 139, 2022), was tabled in Parliament by the Attorney-General of Australia, the Hon Mark Dreyfus.

Interim Report B contains recommendations, proposals, and questions in relation to the reform of corporations and financial services legislation. In releasing the report, the Australian Law Reform Commission states that the recommendations in Interim Report B relate to technical improvements that would simplify corporations and financial services legislation and the recommendations are in a form that (if accepted by the Australian Government) may be implemented prior to the conclusion of the Inquiry.

Submissions close on 30 November.

ASIC releases annual licensing report

On 30 September, ASIC released its annual licensing report. Report 738 Licensing and professional registration activities: 2022 update outlines ASIC’s licensing and professional registration activities, discusses new and proposed changes to our licensing processes, and notes other work that affects licensees.

Since releasing the last licensing update, the Financial Regulator Assessment Authority (FRAA) completed its first review of ASIC, which included an assessment of ASIC’s licensing function. ASIC states that FRAA’s overall assessment is that ASIC’s licensing function is broadly effective, and the licensing team is capable, although somewhat constrained by limited resourcing and technology.

Treasury announces ASIC Industry Funding Model Review

On 28 September, the Treasury announced a review of the ASIC Industry Funding Model (IFM) and issued a Terms of Reference to guide the review. The Government is seeking stakeholder views on options, examples of potential changes and questions that are designed to examine and address a range of issues set out in the Terms of Reference.

The consultation period ends on 28 October.

Report of the Statutory Review of the Consumer Data Right

On 29 September, the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP released the independent Statutory Review of the Consumer Data Right report by Ms Elizabeth Kelly PSM.

The Review found that the CDR's statutory framework has so far been broadly effective in supporting the CDR's rollout, is sufficiently flexible and robust to accommodate further changes to achieve policy objectives and has scope to further explore its limits as the CDR develops.

The report's 15 findings and 16 recommendations provide reflections on the implementation of the CDR to date, suggest developments that could improve CDR into the future, and prompt future discussion.

Treasury releases exposure Consumer Data Right (CDR) draft legislation

On 26 September, the Treasury published exposure draft legislation to enable action initiation in the CDR, which would create a new channel for consumers to instruct a business to initiate actions on their behalf and with their consent. The Treasury is seeking comments on the draft legislation.

According to the Treasury, action initiation would build on data sharing in the CDR, increasing functionality for industry and consumers. Actions could include making a payment, opening and closing an account, switching providers, and updating personal details (such as address) across providers. Action initiation would empower consumers to authorise, manage and facilitate actions securely in the digital economy.

The consultation period ends on 24 October.


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