Financial Services in Focus – Issue 83
In this edition, we outline ASIC’s review of insurance product TMDs, ASIC’s and APRA’s consultation materials on the implementation of FAR, ASIC’s and ACCC’s guidance on environmental claims, and much more.
Click on each heading below to read more about each of these areas: superannuation, insurance, financial markets, banking and other financial services regulation.
APRA publishes final investment governance guidance
On 20 July, APRA released final guidance on investment governance for superannuation trustees. The release is the latest step in a two-year process of consultation and reform by APRA to strengthen investment governance practices across the superannuation industry.
The updated Prudential Practice Guide SPG 530 Investment Governance (SPG 530) is designed to assist trustees in meeting their obligations under the strengthened Prudential Standard SPS 530 Investment Governance (SPS 530), which came into force on 1 January 2023.
SPG 530 provides:
- additional guidance to support requirements relating to liquidity management, stress testing and asset valuations;
- an outline of how APRA expects trustees will consider environmental, social and governance risk factors as part of their overall investment risk management;
- greater clarity in areas requested by industry in applying the standard; and
- a more streamlined approach to guidance, bringing SPG 530 in line with APRA’s Modernising the Prudential Architecture strategic initiative.
APRA publishes updates to FAQs on Superannuation Data Transformation
APRA and ASIC publish review on improving retirement outcomes planning
APRA and ASIC examined the progress made by 15 trustees, which are responsible for 16 industry, retail, corporate and public sector superannuation funds, in implementing the Covenant over the past year. The review considered how trustees understood member needs, how they offered assistance to members and how they executed and oversaw their strategy.
Overall, the review found that while trustees are improving their offerings of assistance to members in retirement, there is variability in the quality of approach taken and a lack of urgency in embracing the intent of the covenant.
The regulators state that the key findings from the review show the need for more focus on:
- understanding member needs. While trustees draw data from a range of internal and external sources to understand their members’ retirement needs, all have gaps in the critical information they need about their members to inform the development of an effective retirement income strategy.
- designing fit-for-purpose assistance. Trustees have taken positive steps to improve assistance through a range of measures. However, some trustees are not using metrics to track how their members are using the assistance measures and their effectiveness to determine whether any changes are needed.
- overseeing strategy implementation. Many trustees have not embedded their retirement income initiatives as concrete actions in their overall business plan. Additionally, a majority of trustees lack quantitative metrics to assess the retirement outcomes resulting from their initiatives.
ASIC warns super trustees to increase efforts to consolidate duplicate member accounts
On 29 June, ASIC issued a media release warning superannuation trustees to effectively consolidate duplicate member accounts after a recent review identified poor trustee practices resulting in consumer harm.
The warning follows ASIC’s review of how nine trustees are meeting their obligation to annually identify and automatically consolidate duplicate member accounts within a superannuation fund to minimise payment of unnecessary fees.
ASIC’s review raised concerns such as:
- lack of documented and consistent procedures for identifying duplicate accounts;
- failure to undertake best interest assessments;
- inadequate member communication regarding duplicate accounts; and
- lack of oversight of the process to ensure adequate treatment of duplicate accounts.
ASIC engaged closely with APRA on this review, and we will continue to work closely to ensure trustees meet their obligations.
ASIC releases findings of its review of insurance target market determinations
On 18 July, ASIC published copies of its letters to the Insurance Council of Australia, the Council of Australian Life Insurers and the FSC that contain the findings of its review of over 100 target market determinations (TMDs) for general and life insurance products.
Each TMD was examined against the content requirements contained in the Corporations Act and ASIC Regulatory Guide 274 Product design and distribution obligations (RG 274).
The letters contain important information and guidance on ASIC’s expectations of insurance TMDs that insurers should consider in the context of assessing compliance with their own TMDs and distribution arrangements.
New Life Insurance Code of Practice comes into effect
On 1 July, the FSC’s new Life Insurance Code of Practice (Life Code) came into effect.
The Life Code has 50 additional consumer protections including:
- increased support for customers experiencing vulnerability or financial hardship;
- guidelines for the development of family violence policies;
- the removal of blanket mental health conditions;
- more transparency around underwriting decisions;
- an extension of the moratorium on genetic testing; and
- stronger powers for the Life Code Compliance Committee.
ASIC requests ASX to establish industry roundtable in support of ASX’s CHESS replacement project
On 14 July, ASIC announced that it has requested that ASX establish a high-level industry advisory group to support ASX’s CHESS replacement project.
It is proposed that this group is independently chaired and will advise on significant strategic clearing and settlement issues relating to cash equities trading in Australian markets with a focus on CHESS replacement. ASIC’s initiative follows longstanding industry concerns over the adequacy of ASX’s stakeholder engagement and governance.
On the same day ASX acknowledged ASIC’s request and noted that, as ASX progresses the new solution design for CHESS replacement, the project will begin shifting into a detailed design and implementation planning phase which is expected to draw increased levels of stakeholder engagement.
ASX consults on amendments to the term “Publication” and reducing the Interbank delivery window
On 11 July, ASX released consultation paper, Consultation for the amendments to the term "Publication" and Reducing the Interbank delivery window.
The consultation paper is seeking feedback from market participants on the following proposals:
- amendments to the term "Publication" within the ASX BBSW Conventions and Methodology.
- reducing the Interbank delivery window (for the purposes of NBBO) from +/- 5 business days to +/-3 business days.
The consultation will be open until 8 August.
ASX releases consultation paper on the future of mFund
On 6 July, the ASX released a consultation paper on the future of the ASX Managed Fund Settlement Service (mFund). As part of the consultation, ASX is seeking feedback on industry preferences for dealing in managed funds via ASX and a proposed process for winding down and closing mFund if appropriate.
Written submissions are requested by 18 August.
ASX corrects speculation on CHESS replacement solution
On 29 June, ASX issued a media release to correct speculation that ASX has made a decision regarding the solution and a partner for the replacement of CHESS.
ASX confirms that no decision has been taken to determine the solution for the replacement of CHESS from the range of possible technologies and partners being considered.
ASIC protects Indigenous consumers for better banking outcomes
On 5 July, ASIC published findings from their Better Banking for Indigenous Consumers Project (Project).
The Project reviewed TMDs for both high-fee and low-fee ‘basic’ accounts offered by some of Australia’s major and regional banks and found that some individuals in high-fee transaction accounts, including First Nations people, are paying up to $3,000 in overdraw fees over a year.
Additionally, the review revealed that:
- over 110,000 consumers in locations with higher-than-average proportions of First Nations people and in receipt of AbStudy payments are in high-fee accounts, despite being eligible for a low-fee account;
- these consumers paid over $6 million in fees over a 12-month period, which would have been avoided were they in a low-fee account; and
- the most prevalent fee was an ‘overdraw’ fee, which is not charged on a low-fee account.
ASIC issued notices to those banks requiring data on fees charged to consumers in locations with higher-than-average proportions of Indigenous people and for customers in receipt of AbStudy payments.
ASIC wrote to the banks regarding their expectations and key findings. This includes outlining reasons for banks to:
- migrate all eligible transaction account customers in Indigenous Pilot locations and those on AbStudy to low-fee accounts on an ‘opt-out’ basis;
- ensure that fees are removed for new and existing customers, when products are altered and fee structures changed to remove particular fees;
- review and improve TMDs and account-opening procedures in line with design and distribution obligations to prevent future harm of this type to all prospective customers;
- remediate impacted customers; and
- make procedural changes to tailored Indigenous services to better meet their commitments to their Indigenous customers.
Government response to potential policy responses to de-banking
On 28 June, Treasury released its potential policy responses to advice provided by the Council of Financial Regulators regarding de-banking (CFR advice).
According to the Treasurer, Jim Chalmers, the Government intends to work closely with regulators, banks and affected sectors to ensure the government can effectively implement the recommendations outlined in the CFR advice:
- Recommendation 1: Data collection: That voluntary data collection on de-banking be undertaken by the four major banks, following which, consideration will be given to a formal phase of data collection, subject to appropriate resourcing for relevant agencies.’
- Recommendation 2: Transparency and fairness measures: That all banks implement five related measures to improve transparency and fairness in relation to de-banking.’
- Recommendation 3: Guidance by specified banks: That the four major banks be advised of the Government’s expectations that they publish guidance applicable to the digital currency exchanges, FinTech and remittance sectors concerning their risk tolerance and their requirements to bank these sectors.’
- Recommendation 4: Capability uplift: That consideration be given by Government to funding targeted education, outreach and guidance to the FinTech, digital currency exchanges and remittance sectors. If the Government is interested in pursuing capability uplift, the participating agencies can advise on implementation options.’
APRA and ASIC commence early consultation on FAR
The FAR will impose a strengthened responsibility and accountability framework for APRA-regulated entities in the banking, insurance and superannuation industries and their directors and most senior and influential executives. In doing so, it is designed to improve the risk and governance cultures of those financial institutions.
To support early engagement with entities and to enable the timely implementation of the FAR, APRA and ASIC have released a package of documents for consultation, including:
- proposed Regulator rules that prescribe information for inclusion in the FAR register of accountable persons, including supporting detail about the ADI key function descriptions; and
- proposed Transitional rules that prescribe information to be provided by banking entities in relation to their existing accountable persons under the ‘BEAR’ at the transition point.
The draft Regulator rules and Transitional rules are based on the Bill, which was introduced into Parliament on 8 March 2023, and is still under consideration by Parliament. The rules will be reviewed if amendments to the Bill occur before it is enacted, and those changes impact on the rules.
Treasury announces improvements to the Consumer Data Right rules
On 21 July, Assistant Treasurer, Stephen Jones, announced that he had as signed into law operational enhancements to the Consumer Data Right (CDR) rules which will allow businesses to more easily and safely share their CDR data with third parties, such as bookkeepers and software providers.
According to Mr Jones, in addition to the safety improvements, these changes will support business consumers to access better advice more efficiently, promote flexibility, and free up businesses to invest in innovation and improve product offerings to consumers.
National Anti-Scam Centre brings together cross-sector leaders to stop scammers
On 21 July, the ACCC announced that the National Anti-Scam Centre held its inaugural Advisory Board meeting this week marking the commencement of greater cross-sector collaboration in the fight against scammers.
The Advisory Board will support and inform the delivery of the National Anti-Scam Centre’s work to disrupt scammers and reduce the impact of scams for consumers and businesses.
APRA finalises new prudential standard on operational risk
On 17 July, APRA finalised Prudential Standard CPS 230 Operational Risk Management (CPS 230) aimed at ensuring banks, insurers and superannuation trustees can better manage operational risks and respond to business disruptions.
CPS 230 provides a foundation for APRA-regulated entities to:
- strengthen operational risk management through new requirements to address identified weaknesses in existing controls;
- improve business continuity planning to ensure they are positioned to respond to severe disruptions; and
- enhance third-party risk management by ensuring risks from material service providers are appropriately managed.
CPS 230 will commence from 1 July 2025.
APRA also released a draft Prudential Practice Guide CPG 230 Operational Risk Management to assist regulated entities with the implementation of CPS 230. APRA invites consultation on this draft guidance by 13 October.
ACCC publishes draft guidance to improve businesses’ environmental claims
The draft guidance aims to address the concerning conduct identified by the ACCC’s recent greenwashing internet sweep, which found 57% of businesses reviewed were making potentially misleading environmental claims.
The draft guidance provides direction on how to improve the integrity of environmental and sustainability claims made by businesses and to protect consumers from ‘greenwashing’.
FRAA releases report on its review of APRA’s effectiveness and capability
On 13 July, the Financial Regulator Assessment Authority (FRAA) released its report detailing its assessment of the effectiveness and capability of APRA’s supervision and resolution of the superannuation industry (Report).
The Report noted APRA’s successful regulation of the banking, insurance, and superannuation industries through complex challenges and crises in recent years.
The Report made the following five recommendations:
- APRA should increase its efforts to identify risks in superannuation, including emerging and systemic risks, and their potential consequences.
- APRA should prioritise and invest in initiatives to recruit, train, retain and develop its staff to build appropriate skills and industry knowledge, to drive deeper understanding and build stronger capability to manage and respond to emerging and systemic risks.
- APRA should continue to invest in its data and technology capabilities and processes to provide timely insights, allow effective internal collaboration, and to the extent appropriate, minimise regulatory burden associated with data and information requests.
- APRA should provide trustees with annual plans of proposed supervisory activity. APRA should keep trustees informed of the status of reviews, information requests and other supervisory activities. In relation to thematic reviews, APRA should consider publishing its methodologies and more detailed insights to build public awareness and enable interested parties to comment. APRA should consider communicating more timely and detailed insights across industry to increase awareness of risks and promote better practices.
- APRA should prioritise developing its resolution capability and work closely with industry to lift awareness of recovery and resolution planning requirements, to ensure APRA is able to support recovery and exit, and resolve failing superannuation trustees.
On the same day, APRA announced that it welcomed the Report and will act on the recommendations, which will also be reflected in APRA’s Corporate Plan (to be released next month).
ASIC publishes greenwashing article
On 10 July, ASIC released an article addressing the implications of greenwashing.
ASIC noted that greenwashing erodes investor confidence in the market for sustainability-related financial products and corporate strategies, and that it has taken 35 regulatory interventions against greenwashing activity in the nine months to March 2023. ASIC intervened where:
- net zero statements and targets did not appear to have a reasonable basis, or were factually incorrect;
- terms like ‘carbon neutral’, ‘clean’ or ‘green’ didn’t appear to have a reasonable basis for the related claims;
- there was use of inaccurate labelling or vague terminology in sustainability-related funds; and
- the scope or application of a sustainability-related investment screen or exclusion was vague or overstated in a PDS or on associated websites for ESG-related financial products.
Ultimately, ASIC concluded that only meaningful, responsible, and transparent disclosure will effectively combat greenwashing practices.
Treasury publishes quarterly report on foreign investment
On 7 July, the Treasury published the ‘Quarterly Report on Foreign Investment - 1 January to 31 March 2023.’
This quarterly report sets out key performance data concerning the operation of Australia’s foreign investment regulatory framework. The next quarterly report will be published in August 2023.
APRA publishes findings from cyber security stocktake
On 5 July, APRA published its early findings from its first tranche of assessment on cyber resilience in financial services which highlighted a number of gaps in cyber security controls.
The most common gaps identified as part of the first tranche of assessments were:
- incomplete identification and classification for critical and sensitive information assets;
- limited assessment of third-party information security capability;
- inadequate definition and execution of control testing programs;
- incident response plans not regularly reviewed or tested;
- limited internal audit review of information security controls; and
- inconsistent reporting of material incidents and control weaknesses to APRA in a timely manner.
APRA has encouraged entities to review CPS 234 and the gaps outlined above and to incorporate strategies and plans to address any shortfalls in cyber security controls and governance policies.
Entities are currently participating in the second and third tranches of APRA’s assessment. The fourth tranche is expected to be rolled out later this year.
Legislation to establish the Compensation Scheme of Last Resort Levy receives Royal Assent
On 3 July, Financial Services Compensation Scheme of Last Resort Levy (Collection) Act 2023 No. 45 (Cth) (Act) received Royal Assent.
- provides for pre-imposition information and estimates of claims and costs;
- provides for payment of levy, late payment penalty and shortfall penalty; and
- provides for other and related matters.
On the same day, the Financial Services Compensation Scheme of Last Resort Levy Regulations 2023 (Cth) was made under the authority of the Act.
According to the explanatory statement, the purpose of the amending Regulations is to support the amendments made by the governing Act, which created the levy framework to fund the compensation scheme of last resort.
National Anti-Scam Centre coordinates first ‘fusion cell’ to combat investment scams
On 3 July, ASIC announced the establishment of the National Anti-Scam Centre’s first ‘fusion cell’. Fusion cells are time-limited taskforces that leverage the expertise of both government agencies and private sector entities to address urgent and specific problems. This first fusion cell aims to tackle the growing issue of investment scams, which currently cost Australians over $1 billion annually.
The investment scam fusion cell will be set up initially for six months, with the National Anti-Scam Centre publicly reporting outcomes. The fusion cell will aim for:
- early intervention to disrupt investment scams, including stopping scammers from reaching potential victims;
- removing investment scam websites from the internet;
- sharing information about investment scam activity to assist the private sector to take disruption action;
- providing information to the public so they can avoid investment scams; and
- identifying intelligence to refer to law enforcement in Australia and overseas.
ASIC publishes industry funding cost recovery implementation statement
The estimated levies are to be used as a guide only. Final levies will be released in December 2023 and invoiced between January and March 2024.
Treasury announces climate-related financial disclosure: second consultation
On 27 June, Treasury released for consultation a consultation paper called Climate-related financial disclosure, which outlines the proposed positions for the detailed implementation and sequencing of standardised, internationally‑aligned requirements for disclosing climate‑related financial risks and opportunities in Australia.
According to the joint media release issued by the Treasurer, Jim Chalmers, the Assistant Treasurer, Stephen Jones and the Minister for Climate Change and Energy, Chris Bowen, the proposed implementation approach includes:
- mandatory reporting requirements commencing from 1 July 2024 for Australia’s largest listed and unlisted companies and financial institutions, with other businesses subject to the requirements over time.
- a three‑year transitional period, with regulator-only action against directors and reporting entities in relation to forward-looking statements and Scope 3 emissions possible during this time.
- broad alignment with international climate disclosure standards.
This consultation builds on the previous discovery consultation that occurred between 12 December 2022 and 17 February 2023.
Consultation closed on 21 July.
FRAA consults on draft financial system and regulator metrics framework
On 15 June, the Financial Regulator Assessment Authority (FRAA) released a consultation paper called Draft Financial System and Regulator Metrics Framework, which is designed to enhance its ability to assess the effectiveness and capability of APRA and ASIC.
The framework includes metrics to provide another input for future effectiveness and capability assessments, and to assist the FRAA to provide context and insights for its reviews.
Further details regarding the metrics framework, including the key consultation questions, are outlined in the consultation paper.
Consultation closes 27 July.
This article was written with the assistance Aash Velhal, Isabella Emanuel and Francesca Di Mase, Law Graduates.
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