Financial Services in Focus – Issue 89

APRA proposes to remake a number of MIS legislative instruments

On 19 January, ASIC announced it was seeking feedback on the proposal to remake the following class orders relating to managed investment schemes scheduled to sunset on 1 April 2024:

• ASIC Class Order [CO 13/1200] Periodic statements relief for AQUA quoted and listed managed investment scheme manager;
• ASIC Class Order [CO 13/1406] Land holding for primary production schemes;
• ASIC Class Order [CO 13/1409] Holding assets: Standards for responsible entities;
• ASIC Class Order [CO 13/1410] Holding assets: Standards for providers of custodial and depository services; and
• ASIC Class Order [CO 13/1621] Exemption and declaration for the operation of mFund.

According to ASIC’s media release, it has assessed that these class orders are generally operating effectively and efficiently and continue to form a necessary and useful part of the legislative framework.

ASIC proposes to remake the class orders for a period of five years.

APRA releases consultation on minor and consequential amendments to the superannuation prudential framework

On 17 January, APRA released for consultation minor amendments to the superannuation prudential framework. The draft prudential standards follow financial reporting and auditing reforms for superannuation set out in Treasury Laws Amendment (2022 Measures No. 4) Act 2023.

According to APRA’s media release, the changes align with APRA's strategic initiative to modernise the prudential architecture and ensure the framework is kept up to date between more comprehensive reviews of prudential standards.

Consultation is open until 28 February.

ASIC temporarily extends relief from disclosure and reporting consistency obligations for superannuation trustees

On 21 December 2023, ASIC announced  it is extending the exemption from disclosure and reporting consistency obligations in ASIC Superannuation (Disclosure and Reporting Consistency Obligations) Instrument 2023/941.

The Instrument provides an exemption to RSE licensees from complying with subsection 29QC(1) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) for a further two years, until 1 January 2026.

Section 29QC(1) of the SIS Act requires information given to the public (eg in disclosure documents) be calculated in the same way the information is reported APRA under an APRA reporting standard.  

APRA releases update on the revocation of superannuation reporting standards

On 8 December 2023, APRA issued a letter to all RSE licensees on the revocation of superannuation reporting standards. 

The letter follows APRA's commitment to reduce duplicate reporting and reporting burden, as communicated in the Superannuation Data Transformation Phase 2 Response Paper released in August 2022. The letter also includes details of an exemption for reporting under a superannuation reporting standard.

New version of Life Insurance Regulations takes effect

A new version of the Life Insurance Regulations 1995 (Cth) effective from 1 January 2024 was registered on 12 January 2024, and includes minor amendments provided for by the Treasury Laws Amendment (Modernising Business Communications) Regulations 2023.

APRA retires prudential practice guides on the risk management framework for life and general insurers

On 15 January, APRA announced via letter to all general insurers and life insurers it has retired the following two out-of-date Prudential Practice Guides (PPG) on the risk management framework for general and life insurers:

• Prudential Practice Guide GPG 250 Balance Sheet and Market Risk (GPG 250); and
• Prudential Practice Guide LPG 250 Asset and Liability Management Risk (LPG 250).

The decision follows APRA’s strategic initiative to modernise the prudential architecture. It aims to remove out-of-date guidance that no longer adds meaningful value in understanding the current prudential requirements. APRA takes the view the risks considered in GPG 250 and LPG 250 are addressed by requirements in Prudential Standard CPS 220 Risk Management, supported by Prudential Practice Guide CPG 220 Risk Management.

APRA and ASIC release an update on premium increases in the life insurance industry

On 14 December 2023, APRA and ASIC released  a joint letter to life insurers and friendly societies (life companies), responding to life companies’ reviews of past premium increases and disclosure and marketing materials, as requested by APRA and ASIC in December 2022. The letter also outlines APRA and ASIC's observations and regulatory expectations regarding these increases, disclosure and marketing materials and product design.

Treasury consults on competition in the provision of clearing and settlement services – ministerial instruments

On 15 January, Treasury announced it was inviting feedback from stakeholders on the proposed definition of ‘cash equities’ contained in the Corporations and Competition (CS Services) Instrument 2024 and on whether there is, in their view, competition in any of the clearing and settlement services proposed to be covered by the draft instrument.

The Instrument specifies the classes of clearing and settlement services in relation to which ASIC may impose requirements under the clearing and settlement services rules, and the declared clearing and settlement services to which access may be the subject of negotiations or arbitration under Part XICB of the Competition and Consumer Act 2010.

Submissions are due by 1 March.

ASX to explore the development of Australia’s first Carbon Exchange

On 19 December 2023, the ASX announced it will be working with the Clean Energy Regulator (CER) to undertake exploratory work with the industry and regulators on the development of an Australian Carbon Exchange. It is intended to operate in a similar way to a securities exchange where Australian carbon credit units (ACCUs) can be traded, cleared and settled.

According to the ASX media release, beginning from 2024, ASX and CER will engage the industry to identify the solution that can successfully meet the needs of the Australian market and undertake a feasibility study on delivering that solution. This will include assessing whether the identified solution can be supported under the existing regulatory framework for ACCUs or if changes are required.

Treasury consults on financial market infrastructure regulatory reforms

On 14 December 2023, the Government announced it would introduce the financial market infrastructure (FMI) reform package. 

The package includes powers for the RBA to step in and resolve a crisis at a domestic clearing and settlement facility to ensure the continuity of critical clearing functions, and to protect Australia's financial stability. It also includes powers for the RBA to assist a foreign regulator to resolve an overseas clearing and settlement facility licensed in Australia. 

According to Treasury, the draft legislation (and explanatory materials) aims to strengthen and streamline ASIC’s and the RBA’s licensing, supervisory and enforcement powers over FMIs and reallocates powers between the minister and regulators to better accord with their respective mandates. The draft legislation also enhances regulator powers over foreign entities operating FMIs with a significant Australian nexus to ensure they are subject to appropriate oversight.

Treasury also states this package implements the recommendations from the Council of Financial Regulators (CFR) in their advice provided to government on the FMI crisis and supervisory reforms in July 2020.

Submissions are due by 9 February.

ASX commentary on Listing Rule 6.23 regarding options

On 8 December 2023, ASX provided commentary on Listing Rule 6.23 in its ASX Compliance Update no. 09/23.

ASX stated that:

• any change to a performance hurdle or milestone that makes the hurdle or milestone easier to achieve is an increase in the period for exercising the option that is prohibited by Listing Rule 6.23.3. This is because the option might vest in circumstances where it otherwise would not have vested because of the change;
• similarly, the exercise of a general discretion to waive a performance hurdle or milestone notwithstanding that the hurdle or milestone has not been achieved is generally considered by ASX to be an increase in the period for exercising the option that is prohibited by Listing Rule 6.23.3; and
• ASX is very unlikely to waive Listing Rule 6.23.3 in relation to quoted options. However, in limited circumstances, ASX may be prepared to grant a waiver to permit changes to unquoted options on condition that the change is approved by securityholders under Listing Rule 6.23.4.

RBA releases expectations for Tokenisation of Payment Cards and Storage of PANs

On 21 December 2023, the RBA released its final set of expectations for the Tokenisation of Payment Cards and Storage of Primary Account Numbers, which it says is aimed at improving security, efficiency and competition for online card payments. This follows the release of an Issues Paper in June 2023, a Conclusions Paper in September 2023 and subsequent feedback.

According to the Issues Paper, the tokenisation of card payments involves replacing sensitive information – the cardholder’s primary account number (PAN) – with a unique ‘token’ that contains less critical information than the PAN and can be restricted for use on a particular device and/or at a specific merchant. The Issues Paper states that tokenisation can help to reduce the amount of sensitive card details that can be stolen from merchants and payment service providers that store this information for subsequent transactions.

The key expectations the RBA has set are:

• all relevant industry participants should support token portability and token synchronisation by the end of June 2025;
• merchants and payment service providers that do not meet minimum security requirements relating to the storage of sensitive debit, credit and charge card information must not store customers’ PANs after the end of June 2025; and
• the rollout of the eftpos core eCommerce tokenisation service is to be completed by the end of March 2024.

ACCC releases report on its inquiry into retail deposit products

On 15 December 2023, the ACCC released its final report for its inquiry into the retail deposits market.

In the report, Retail deposits inquiry, the ACCC released its findings on the transaction accounts, savings accounts and term deposits and made seven recommendations based on the inquiry’s findings. The ACCC states these recommendations are designed to:

• increase transparency to support decision making;
• support more effective consumer engagement; and
• reduce barriers to consumer switching to drive competition.

In commenting on the release of the report, Treasurer Jim Chalmers said he has asked Treasury to examine these proposals in conjunction with the outstanding recommendations of the 2020 ACCC Home Loan Price Inquiry, and that a government response will be released in 2024.

APRA announces it is ceasing several ad hoc data collections

On 15 December 2023, APRA announced the following ad hoc data collections have been ceased with immediate effect:

• ARF 922.0: COVID-19 Liquidity – LCR (Level 1/Domestic);
• ARF 922.1: COVID-19 Liquidity - LCR (Level 2);
• ARF 922.2: COVID-19 Liquidity - MLH Forecast;
• ARF 922.3: COVID-19 Liquidity - MLH;
• ARF 923.3: COVID-19 Quarterly Capital and Credit;
• ARF 923.4: COVID-19 Forward Looking Information; and
• Major Bank Loan Deferrals Collection.

In early 2024, APRA is expected to publish its policy and supervision priorities in a simplified format to provide a transparent overview on current areas of focus.

APRA moves to reinforce requirements for banks to manage interest rate risk

On 12 December 2023, APRA released updated requirements for banks with the aim of the better management of the impact of interest rate changes on their financial position.

APRA states its revisions to Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book aims to:

• reduce some of the volatility in the IRRBB capital charge;
• create better incentives for banks to manage their IRRBB risk, including raising standards of governance and measurements of risk; and
• simplify and remove complexities in the IRRBB framework.

APRA is now commencing a short consultation on some aspects of APS 117, which are also relevant to smaller banks. After a three-month consultation on the latest proposed revisions, APRA intends to finalise APS 117 by the middle of 2024 ahead of the updated standard coming into effect from 1 October 2025. 

APRA also commenced consultation on a prudential practice guide (APG 117) and reporting standards and guidance to accompany the updated prudential standards APS 117. 

ASIC urges AFS licensees to register their financial advisers and provides a short extension to facilitate compliance

On 18 January, ASIC issued a media release urging AFS licensees to register their financial advisers and provides a short extension until 16 February 2024 to facilitate compliance.

AFS licensees that have not already registered their Relevant Providers are urged to do so as a priority via ASIC Connect.

ASIC states advisers who provide personal advice to retail clients without being registered after 16 February 2024, together with their authorising AFS licensee(s), will be in breach of the law and face potential regulatory action.

AUSTRAC announces its 2024 regulatory priorities

On 13 December 2023, AUSTRAC announced its regulatory priorities for the year ahead, focusing on the financial system’s resilience to money laundering, terrorism financing and other serious crime.

AUSTRAC’s priorities include an ongoing focus upon businesses understanding, mitigating and managing the money laundering and terrorism financing risks they face, particularly across the banking, gambling and remittance sectors, which face higher risks. 

AUSTRAC states additional sectors will be under scrutiny to uplift AML/CTF capability and to ensure legislative compliance. The sectors are:

• digital currency exchanges;
• payment platforms;
• bullion; and
• non-bank lenders and financiers.

ASIC extends product intervention orders for short term credit and continuing credit contracts

On 5 January, ASIC announced it had extended the following product intervention orders made in relation to short-term credit and continuing credit contracts. The orders will remain in force until they are revoked or they sunset on 1 October 2032:

• ASIC Corporations (Product Intervention Order Extension – Short Term Credit) Instrument 2023/956; and
• ASIC Corporations (Product Intervention Order Extension – Continuing Credit Contracts) Instrument 2023/957.

ASIC states that, since the orders came into effect on 15 July 2022, these orders have reinforced consumer protections by preventing the provision of short-term credit and continuing credit contracts that involve unreasonably high fees – fees exceeded the cost caps imposed by the National Credit Code.

Treasury releases consultation paper on a licensing framework for payment service providers

On 8 December 2023, Treasury released a consultation paper, Payments System Modernisation: Regulation of payment service providers, on a licensing framework for payment services providers. Treasury states  the proposed reforms will ensure the regulation of payment services is fit-for-purpose and provides consistent regulation based on the activity a payment service provider perform.

Treasury states that the consultation paper proposes a regulatory framework, which leverages the Australian financial services legal framework to regulate payment service providers, and proposes:

• a set of regulatory requirements to facilitate greater access to payment systems;
• graduated regulatory requirements for stored-value facilities including payment stablecoins;
• a framework for industry standard-setting; and
• a new rule-making power to enable the introduction of a mandatory revised ePayments code to provide enhanced consumer protections.

Consultation closes on 2 February.

Treasury releases consultation paper on winding down Australia’s cheques system

On 8 December 2023, Treasury released a consultation paper, Winding down Australia’s cheques system, which it states will help the Government understand the opportunities and challenges in transitioning away from the cheques system in a smooth and orderly manner.

Consultation closes on 2 February.

ALRC releases review of the Legislative Framework for Corporations and Financial Services Regulation

On 18 January, the final report of the Australian Law Reform Commission’s (ALRC) review of the legislative framework for corporations and financial services regulation was tabled in Parliament.

Confronting Complexity: Reforming Corporations and Financial Services Legislation is the culmination of an inquiry that was referred to the ALRC in September 2020 following the Royal Commission into Misconduct in the Banking.

The ALRC has found the current legislative framework for corporations and financial services regulation is overly complex. It has made 58 recommendations to streamline financial services legislation, including the Corporations Act and the ASIC Act.

Recommendations include:

• generally applicable notional amendments to corporations and financial services legislation should be replaced with textual amendments to the notionally amended legislation;
• corporations and financial services legislation should be structured and framed to enhance navigability and comprehensibility, and to communicate the fundamental norms of behaviour underpinning the legislation, by applying seven specified working principles;
• corporations and financial services legislation should be amended to enact a single, simplified definition of each of ‘financial product’ and ‘financial service’, and these terms should be defined in the Corporations Act and cross-referenced in other legislation;
• the Corporations Act should be amended to restructure and reframe provisions of general application relating to consumer protections;
• proscriptions concerning false or misleading representations and misleading or deceptive conduct in the Corporations Act and the ASIC Act should be replaced by a single, consolidated proscription;
• disclosure regimes in Chapter 7 of the Corporations Act that require disclosure documents to ‘be worded and presented in a clear, concise and effective manner’ should be amended to require that disclosure documents also be worded and presented ‘in a way that promotes understanding of the information’;
• the Corporations Act should be amended to restructure and reframe provisions relating to financial advice;
• the Corporations Act should be amended to restructure and reframe provisions of general application relating to financial services providers;
• the Corporations Act should be amended to restructure and reframe provisions of general application relating to administrative or procedural matters concerning AFS licensees;
• the Corporations Act should be amended to create a dedicated group of provisions known as the Financial Services Law. The Financial Services Law should comprise restructured and reframed provisions relating to the regulation of financial products and financial services. The Financial Services Law should be enacted as Schedule 1 to the Corporations Act. The Financial Services Law and delegated legislation made under should be periodically reviewed by an independent reviewer;
• the provisions of Chapter 7 of the Corporations Act relating to the regulation of financial products and financial services should be amended to include a single power vested in ASIC to grant individual relief;
• there should be a power to make ‘rules’ in relation to the provisions of Chapter 7 of the Corporations Act, which should not deal with matters more appropriately enacted in primary legislation, and which should be vested in the Minister and ASIC. The rule-making process should be subject to oversight by an independent ‘Rules Advisory Committee’ and the rules must be accompanied by a publicly available statement explaining how the instrument is consistent with relevant objects within Chapter 7 of the Corporations Act; and
• the Australian Government should establish a specifically resourced taskforce (or taskforces) dedicated to implementing reforms to financial services legislation. In addition, the Australian Government should establish a publicly available data framework for monitoring the development of corporations and financial services legislation.

The Government is now considering the report and recommendations.

Treasury consults on climate-related financial disclosure draft legislation

On 12 January, Treasurer Jim Chalmers announced the Government is seeking views on the exposure draft legislation and accompanying explanatory materials related to the Government’s final policy design for corporate climate-related financial disclosure requirements.

The draft legislation amends the ASIC Act and the Corporations Act to introduce standardised, internationally-aligned reporting requirements for businesses, to ensure they are making high quality climate-related financial disclosures.

Submissions are due by 9 February.

ASIC highlights focus areas for 31 December 2023 reporting

On 19 December 2023, ASIC issued a media release urging directors, preparers of financial reports and auditors to assess the impact of uncertain market and economic conditions when reporting for full and half-years ending 31 December 2023.

Key findings in ASIC’s first integrated financial reporting and audit surveillance report, Report 774 Annual financial reporting and audit surveillance report 2022–23, form the basis for identifying areas for particular consideration, including:

• impairment and asset values;
• provisions;
• events occurring after year end and before completing the financial report;
• disclosures in the financial report and operating and financial review; and
• the impact of a new accounting standard for insurers.

More detail about ASIC’s focus areas for 31 December 2023 reporting can be found on ASIC’S financial reporting and audit page.

ASIC industry funding: Release of 2022-23 annual dashboard and summary of variances

On 15 December 2023, ASIC published its annual dashboard of regulatory costs for 2022-23 by activity for each sector and subsector under the industry funding model. This is a requirement under s138 of the ASIC Act. These costs, calculated at the end of each financial year, are based on the actual effort it expends for each sector and subsector.

For more information about the industry funding model, see ASIC industry funding.

Government releases final report on social impact investing

On 18 December 2023, the Australian Government released the Final Report of the Australian Social Impact Investing Taskforce.  The release of the report follows the Treasurer’s Investor Roundtable session on Social Impact Investing on 5 December 2023.

ACCC releases eight principles to guide businesses’ environmental claims

On 12 December 2023, the ACCC published eight principles to help businesses ensure any environmental marketing and advertising claims they make about their products or services are clear and accurate, and do not mislead consumers. The final guidance is available on the ACCC website at Making environmental claims: A guide for business.

The final guidance incorporates feedback from over 150 stakeholders across consumer, business and environmental organisations on the ACCC’s draft version of the guidance.

In early 2024, the ACCC will release further guidance for businesses and consumers on emission and offset claims, as well as the use of trust marks. The ACCC will also develop guidance to help consumers confidently assess and rely on environmental claims.

The eight key principles are:

1. make accurate and truthful claims;
2. have evidence to back up your claims;
3. don’t hide or omit important information;
4. explain any conditions or qualifications on your claims;
5. avoid broad and unqualified claims;
6. use clear and easy-to-understand language;
7. visual elements should not give the wrong impression; and
8. be direct and open about your sustainability transition.

Government releases response to the ACCC Digital Platform Services Inquiry

On 8 December 2023, the Government issued its response to the November 2022 report of the ACCC’s Digital Platform Services Inquiry.

The Government supports in‑principle the recommendations made by the ACCC and will undertake further work to implement its recommendations, including consulting on the development of a new ex‑ante digital competition regime to address anti‑competitive behaviours of certain digital platforms.

In commenting on the Government’s response, Assistant Treasurer,Stephen Jones said the Government is considering options to address unfair trading practices to complement the unfair contract terms regime.