Financial Services in Focus – Issue 87

By Vince Battaglia, Philip Hopley and Georgia Francis

In this edition, we outline ASIC’s changes to the reportable situation regime, ASIC’s commentary on under-reporting of reportable situations, the Government’s proposed sustainable finance strategy, and much more. We also warmly welcome the McMahon Clarke team to Hall & Wilcox, including partners Elliott Stumm, Emma Donoghue, Sean McMahon and Langton Clarke. We now offer Australia’s leading investment funds advisory team HW Funds.

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

AFCA consults on its approach to determining compensation in complaints involving financial advisers and managed investment schemes

On 6 November, AFCA announced it is consulting on its draft Approach to determining compensation in complaints involving Financial Advisers and Managed Investment Schemes.

AFCA states that its draft approach sets out how AFCA considers:

  • liability and compensation in relation to financial advice firms and responsible entities where the advice firm has provided advice on interests in a managed investment scheme, including those schemes that have subsequently failed or become insolvent,
  • proportionate liability statutes in relation to complaints involving financial advisers and managed investment schemes,
  • its powers to join a party to a complaint if the party is an AFCA member, and
  • fairness when apportioning loss in these complaints.

AFCA states that the approach is not new and simply explains its existing procedure and the principles it may have regard to – such as proportionate liability statutes – when making decisions, apportioning liability and awarding compensation for a loss in investment and advice complaints.

Consultation closes on 11 December.

ASIC proposes to temporarily extend relief from disclosure and reporting consistency obligations for super trustees

On 6 November, ASIC announced that it proposes to extend the exemption from the consistency obligations in ASIC Class Order [CO 14/541] for two years, which provides relief from section 29QC of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).

Section 29QC of the SIS Act requires that information given to the public (eg in disclosure documents) be calculated in the same way that the information is reported to APRA under an APRA reporting standard.

Industry is invited to provide feedback on ASIC’s proposal, including whether the instrument is operating effectively and efficiently and/or whether any amendments are required.

Comments are requested by 4 December.

Government proposes retrospective amendments regarding superannuation fund mergers and defined benefit income streams

On 26 October, the Assistant Treasurer, Stephen Jones, announced that the Government is progressing legislative amendments to the transfer balance cap for individuals with a capped defined benefit income stream to ensure members are not adversely impacted in the event of a merger or successor fund transfer between superannuation funds.

According to the media release, under current legislation a member’s cap may be unintentionally impacted due to the original income stream being treated as ceasing and a new one beginning. This means a new valuation of the capped defined benefit income stream is required, which can result in a higher valuation for the transfer balance cap and lead to adverse outcomes for some members.

It is intended that the amendments will apply retrospectively from 1 July 2017.

ASIC and APRA release notes on fifth Superannuation CEO Roundtable

On 20 October, ASIC and APRA released the public notes on the fifth Superannuation CEO Roundtable held on Wednesday, 27 September 2023.

The Roundtable was hosted by ASIC Senior Executive Leader Jane Eccleston and APRA Deputy Chair Margaret Cole. It was attended by 10 superannuation trustee CEOs and executives, representing a broad cross-section of the industry and focused on sustainable finance disclosures and the Retirement Income Covenant.

APRA corrects Prudential Standard LPS 310 Audit and Related Matters

On 8 November, APRA issued a letter to all life insurers advising that a minor error has been identified in Prudential Standard LPS 310 Audit and Related Matters (LPS 310). The error relates to the level of assurance required for two reporting standards listed in Attachment A of LPS 310.

APRA has corrected the errors in an updated (marked-up) version of LPS 310, effective from 18 December 2023.

ASIC signs memorandum of understanding with the International Association of Insurance Supervisors

On 24 October, ASIC announced that it has signed the International Association of Insurance Supervisors Multilateral Memorandum of Understanding (MMoU), which it says is an international supervisor cooperation and information exchange agreement.

The MMoU provides a global framework of compliance and confidentiality to allow for open cooperation and exchange between insurance supervisors. ASIC states that, through membership in the MMoU, supervisors can exchange relevant information and assist other signatories, thereby promoting the financial stability and sound supervision of cross-border insurance operations for the benefit and protection of consumers.

Life Code Compliance Committee publishes Annual Report

On 30 September, the Life Insurance Code Compliance Committee published its Annual Report 2022-23, which details its activity over the past 12 months in enforcing the Life Code.

The Annual Report noted an increase in subscribers identifying and reporting significant breaches of the Code. In the 2022-23 reporting period, the Committee investigated 236 possible breaches, which confirmed 79 breaches of the Code; of these 35 were significant breaches and 78 resulted in some form of corrective action by the subscriber.

FATF updates on global ML/TF risks

On 8 November, the Financial Action Task Force (FATF), the global group that sets international anti-money laundering and counter-terrorism financing (ML/TF) standards, published two recent updates relating to international ML/TF risk.

The reports provide an update on jurisdictions that may pose a risk to the international financial system:

According to the media release, 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.

Treasury consults on the Government’s proposed sustainable finance strategy

On 2 November, Treasury released a consultation paper seeking feedback on the Government’s ‘Sustainable Finance Strategy’, which is aimed at supporting Australia’s pathway to net zero by providing an ambitious and comprehensive framework for reducing barriers to investment into sustainable activities.

The Strategy’s policy priorities are structured in three key pillars:

  • Pillar 1: Improve transparency on climate and sustainability.
  • Pillar 2: Financial system capabilities.
  • Pillar 3: Australian Government leadership and engagement.

Treasury states the Government seeks feedback on the Strategy, the proposed tools and policies, and the specific questions raised in the paper.

The Treasurer, Jim Chalmers, stated that the Strategy is all about mobilising the significant private capital required to achieve net zero, modernising Australia’s financial markets and maximising the economic opportunities associated with our energy, climate and sustainability goals.

Consultation closes 1 December.

ASIC releases new alert list highlighting suspicious investment opportunities

On 8 November, ASIC announced it strengthened its scam prevention tools to support consumers with the publication of a new investor alert list. ASIC says that consumers can use this list to help inform themselves as to whether an entity they are considering investing in could be fraudulent, a scam or unlicensed.

The new investor alert list replaces the previous ‘Companies you should not deal with’ list and includes domestic and international entities that ASIC is concerned are operating and offering services to Australians without appropriate licences, exemptions, authorisations or permissions. It also includes ‘impostor’ entities, which are entities that impersonate or falsely claim to be associated with a legitimate business (also known as impersonation scams).

ASIC article on greenwashing

On 7 November, ASIC published an article by ASIC Deputy Chair Sarah Court on greenwashing. In the articles, Ms Court states that future enforcement activity may move beyond misleading and deceptive conduct to licence obligations, D&O duties, and a range of other obligations, and future areas of interest are likely to include:

  • net zero statements and targets;
  • use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’; and
  • the scope and application of investment exclusions and screens.

In the article, the Deputy Chair states that where public statements are made that assert aspirational environmental positions with a sound basis and supported by business plans and investments to substantiate these goals, ASIC is unlikely to have concerns.

Treasury consults on the effects of amendments to continuous disclosure regime

On 1 November, Treasury released for consultation a paper regarding a review of the operation of the amendments made to the continuous disclosure regime by the Treasury Laws Amendment (2021 Measures No.1) Act 2021 (Act).

The amendments made by the Act introduced a requirement for plaintiffs to prove that companies and their officers acted with ‘knowledge, recklessness or negligence’ to be successful in a civil penalty proceeding for breaches of continuous disclosure laws.

Submissions close on 1 December.

AFCA publishes report into systemic issues

On 19 October, AFCA published its Systemic Issues Insights Report for January to June 2023.

In this report AFCA shares case studies, findings and key insights from a range of systemic issues cases across the industry.

In summary, AFCA:

  • identified and investigated systemic issues resulting in remediation to 145,480 consumers;
  • conducted 88 detailed systemic issues investigations (with some investigations being ongoing); and
  • resolved 54 systemic issues with financial firms.

AFCA encourages financial firms to use these case studies and insights to continuously improve their own practices and customer experience.

ASIC releases second publication on insights from the reportable situations regime

On 31 October, ASIC released its second publication on information lodged under the reportable situations regime.

Over 16,000 reports were made to ASIC by financial services and credit licensees under the regime between 1 July 2022 and 30 June 2023.

ASIC considers that little improvement has been made in key areas of concern that ASIC highlighted in the first publication on insights from this regime last year. Among other things:

  • the proportion of the licensee population reporting remains very low, indicating that some licensees may not be complying with the regime;
  • licensees are still taking too long to identify and investigate some breaches;
  • a significant number of remediation activities are still taking too long to complete; and
  • there remain opportunities to improve identification and reporting root causes of breaches.

ASIC states that, since the regime commenced in October 2021, only 11% of the licensee population has lodged a report, which ASIC considers remains significantly lower than expected and indicates that some licensees may not have in place the systems and processes required to detect and report breaches. Accordingly, ASIC states it has commenced surveillance activity targeting licensees who may not be meeting their obligations, and will focus on licensees who are not reporting or are reporting significantly less than expected given their nature, scale, complexity, and when compared to peers.

ASIC releases first integrated financial reporting and audit surveillance report for 12 months to 30 June 2023

On 18 October, ASIC released findings from its first integrated financial reporting and audit surveillance program. 

Report 774 Annual financial reporting and audit surveillance report 2022–23  outlines findings related to insufficient disclosure of material business risks in the operating and financial review, impairment of assets and revenue recognition and other financial report disclosures. ASIC reviewed 180 financial reports of ASX-listed entities and other large unlisted entities, as well as 15 related audit files from 1 July 2022 to 30 June 2023.

ASIC said its surveillances have found that preparers and auditors of financial reports need to focus on accounting for non-financial assets, asset values, revenue recognition and disclosure of material business risks.

As a result of ASIC’s surveillance, adjustments totalling $215 million were made to previously released financial information by ASX-listed companies and other large entities.

Treasury Annual Report 2022-23

On 18 October, Treasury published its Annual Report 2022-23 which outlines performance against outcomes, program and performance information contained in the Portfolio Budget Statements 2022–23, Portfolio Additional Estimates Statements 2022–23, and the Treasury Corporate Plan 2022–23.

ASIC modifies licensees’ obligations under reportable situation regime

On 19 October, ASIC made ASIC Corporations and Credit (Amendment) Instrument 2023/589 (Instrument), which modifies the reportable situations regime in the Corporations Act for AFS and credit licensees.

Under the reportable situations regime, AFS licensees and credit licensees are automatically required to submit notifications to ASIC about some reportable situations, which include deemed ‘significant’ breaches of ‘core obligations’ specified in section 912D of the Corporations Act and section 50A of the National Consumer Credit Protection Act 2009.  

The Instrument modifies this requirement to exclude certain breaches of the misleading or deceptive conduct provisions in subsection 1041H(1) of the Corporations Act or subsection 12DA(1) of the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the false or misleading misrepresentations provision in s12DB(1) of the ASIC Act from being deemed significant breaches of a core obligation and therefore automatically reportable. To qualify for the exclusions, the relevant breach must:

  • only impact one person or, if it relates to a financial product, credit product, consumer lease, mortgage or guarantee that is, or is proposed to be, held jointly by more than one person, those persons;
  • not result in, and be unlikely to result in, any financial loss or damage to any person (regardless of whether that loss or damage has been, will be or may be, remediated); and
  • not give rise, and be unlikely to give rise, to any other reportable situation.

The Instrument also modifies subsection 912D(3) of the Corporations Act to reflect the amended paragraphs of the ‘financial services law’ definition that the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023 inserts.

This article was written with the assistance of Aash Velhal and Isabella Emanuel, Law Graduates.


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