Financial Services in Focus – Issue 94

By Vince Battaglia, Philip Hopley, Georgia Francis and Aashray Velhal

In this edition, we outline APRA’s new digital ‘Prudential Handbook’, Treasury’s consultation on draft financial advice legislation, ASIC’s no-action position to ‘second party opinion’ providers and much more.

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

Funds

Treasury consults on effectiveness of laws regarding online members’ meetings

On 24 June, Treasury released a consultation paper from the panel conducting the Statutory Review of the Meetings and Documents Amendments.

The panel is reviewing the reviewing amendments to the Corporations Act made by:

• Schedule 1 of the Treasury Laws Amendment (2021 Measures No.1) Act 2021; and
• the Corporations Amendment (Meetings and Documents) Act 2022.

These amendments allowed companies and registered schemes to hold online meetings, electronically execute documents and transmit meetings-related documents electronically.

The panel is to provide a final report with the outcomes of their review to the government by 14 August 2024.

Consultation closes on 19 July 2024.

Superannuation

APRA finalises superannuation prudential framework amendments for audit

On 18 June, APRA finalised its consultation on minor and consequential amendments to the superannuation prudential framework for audit. In its letter, ‘Superannuation prudential framework – minor and consequential audit updates‘, APRA sets out its response to feedback from the consultation and issues final versions of the relevant prudential standards and guidance.

The letter, submissions to the consultation and final and marked-up versions of the prudential standards and guidance can be viewed here.

APRA has published further guidance on the Your Future, Your Super Performance Test

On 7 June, APRA issued a set of new and updated frequently asked questions (FAQs) to provide further guidance on the administration of the government’s Your Future, Your Super Performance Test.

The new FAQs will provide clarification on these topics regarding the 2024 Performance Test:

• treatment of ‘Not Specified’ and ‘Not Applicable’ domicile type and listing type reporting; 
• treatment of Separately Managed Accounts; and
• benchmark representative administration fees and expenses in the 12 months to March 2024.

APRA releases response on Superannuation Promoter definition

On 6 June, APRA released its response to the consultation on the proposed updates to the ‘promoter’ definition under Reporting Standard SRS 101.0 Definitions for superannuation data collections.

The consultation response letters, including draft publications, confidentiality proposals and non-confidential submissions are all available on the APRA website.

Financial product advice

ASIC reminds AFS licensees about new experienced provider pathway notification obligations

On 26 June, ASIC issued a reminder that from 1 July, AFS licensees who receive a copy of a written declaration from a financial adviser who is eligible to rely on the pathway must notify ASIC within 30 business days of receiving the declaration. ASIC has provided guidance in Information Sheet 281 FAQs: Relevant providers – Accessing the experienced provider pathway, on how AFS licensees can satisfy for themselves that a financial adviser who has given them a copy of a written declaration is eligible to access the pathway.

The Financial Advisers Register will not display whether a financial adviser is relying on the experienced provider pathway.

ASIC grants class no-action position to ‘second party opinion’ providers

On 14 June, ASIC announced it has issued a class no-action position in response to approaches by industry participants about whether ‘second party opinion’ (SPO) providers may be providing financial product advice that requires them to hold an AFS licence.  This no-action position has been issued in relation to offers made only to wholesale clients for the following reasons:

• it supports market integrity in sustainable finance through facilitating practices to verify claims that an investment has green credentials;
• with the conditions imposed, the identified regulatory benefits outweigh the regulatory detriment; and
• it is consistent with ASIC’s 2023-2027 Corporate Plan to ensure Australia’s approach to sustainable finance practices reflect global best practice.

ASIC does not intend to take action for a contravention of the requirement to hold an AFS licence under section 911A(1) of the Corporations Act in relation to providing an SPO in connection with an offer to wholesale clients that involves the provision of financial product advice. ASIC states the no-action letter does not prevent third parties from taking legal action in relation to that conduct.

The class no-action will apply until the end of 15 June 2026 unless revoked or modified. Please see Regulatory Guide 108 No-action letters for more details.

Government release draft regulations on Quality of Advice Review

On 11 June, the Australian Government announced it is consulting on the Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024 (draft regulations).  These are consequential amendments to support the implementation of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Amending Bill) and delivery of the first tranche of the government’s response to the Quality of Advice Review.

The draft regulations:

• support written information or documentation requirements for the purposes of section 99FA of the Superannuation Industry (Supervision) Act 1993to continue to be met electronically;
• remove requirements related to Fee Disclosure Statements, update record keeping obligations for new consent requirements and remove references to civil penalties that are removed in the Amending Bill;
• align requirements for Financial Services Guides and Website Disclosure Information and make other consequential amendments;
• streamline the regulations for conflicted remuneration in line with the changes to the Amending Bill;
• ensure the informed consent requirements apply for benefits given in relation to a general insurance product where personal advice is provided.

A link to the explanatory statement is available here. All interested parties can provide feedback on the draft regulations by 8 July.

Markets

ASIC calls on market intermediaries to strengthen supervision of business communications

On 26 June, ASIC called on market intermediaries to strengthen their supervisory arrangements for recording and monitoring representatives’ business communications to prevent, detect and promptly address misconduct and contraventions of financial services laws.

ASIC’s Information Sheet 283 Supervising your representatives’ business communications (INFO 283) responds to concerns that the use of unmonitored communication channels and encrypted communication applications in business communications can significantly increase the risk of misconduct going undetected.

INFO 283 gives practical guidance to market intermediaries (investment banks, participants of exchange and over-the-counter markets, securities dealers and corporate advisers) about managing these risks, embedding supervisory arrangements for business communications and reviewing their effectiveness in compliance with their obligations under the Corporations Act and ASIC market integrity rules.

The Information Sheet deals with common challenges and pitfalls for market intermediaries in effectively supervising their representatives’ business communications, including:

• the emergence of new and popular communication channels that are outside the scope of their surveillance systems;
• weak or no controls to identify where data used in surveillance systems is incomplete or erroneous; and
• reliance on ‘out of the box’ settings of vendor-provided communication surveillance systems and a failure to routinely calibrate alert parameters.

Banking

APRA publishes response to submissions on minor updates to capital framework for ADIs

On 26 June, APRA released a response to submissions on minor updates to the capital framework for ADIs.

In the response letter, ‘ADI capital reforms: Minor updates‘, APRA addresses specific issues raised by industry on the implementation of the new capital framework for ADIs. The final amendments are minor and technical in nature.

The response letter, prudential standards, prudential practice guides and reporting standards are available on the APRA website.

ASIC approves enhanced Banking Code of Practice

On 27 June, ASIC announced it has approved a new version of the Australian Banking Association’s (ABA) Banking Code of Practice, which includes enhancements to key protections. The new Code will commence on 28 February 2025 (February 2025 Code).

The enhancements in the February 2025 Code include:

• expanding the definition of a small business from $3 million in aggregate borrowings to $5 million, meaning another 10,000 businesses will be eligible;
• improved inclusivity and accessibility for customers, including via interpreter services;
• new provisions for deceased estates;
• broadening the definition of financial difficulty; and
• enhanced protections for loan guarantors.

ASIC’s decision to approve the new Banking Code of Practice follows an independent review of the code in 2021, public consultation by ASIC on a revised code from November 2023 to January 2024 and engagement with the ABA, consumer groups and other interested stakeholders.

Government announced law reform on banking products

On 15 June, Treasurer Dr Jim Chalmers announced the government is implementing a raft of measures, which he says are designed to help Australians get better rates on their mortgages and savings accounts. 

The proposals include:

• requiring banks to notify customers when the interest rate changes on their transaction or savings account and to improve disclosure requirements for basic deposit products;
• requiring financial product comparison websites to better disclose what determines how products are ranked and the financial relationships they have with recommended product providers;
• making it easier to switch loans by ensuring customers have direct and easy access to the forms needed to exit a mortgage;
• working with banks to help improve how customers are notified about bonus interest rate offers and when an introductory lower interest rate period ends, including through the potential development of industry standards; and
• asking Treasury to investigate how behavioural economics and prompts could be used in the banking sector to encourage consumers to switch to cheaper home loans and retail banking products.

Consumer credit

Government introduces consumer protections for Buy Now Pater Later

On 5 June, Assistant Treasurer Stephen Jones announced the government introduced new consumer protection legislation for Buy Now Pay Later (BNPL) that will see BNPL operators regulated as consumer credit.

The Assistant Treasurer states the new legislation will:

• amend the NCCP Act to require BNPL providers to hold an Australian credit licence;
• mean operators will need to comply with existing credit laws, regulated by ASIC; and
• establish a new category of ‘low‑cost credit’ under the NCCP Act, to reflect the lower risk and cost of BNPL compared with other regulated forms of credit.

Other financial services regulation

RBA increased settlement activity threshold for Financial Stability Standards for Securities Settlement Facilities

On 20 June, the Reserve Bank of Australia decided to increase the settlement activity threshold under the Financial Stability Standards for Securities Settlement Facilities (SSF Standards) to achieve a better balance between the risks posed by small firms to the financial system and the regulatory burden imposed on them.

The review of the settlement activity threshold in the SSF Standards was initiated following the Payments System Board’s meeting in November 2023.

Government announces Sustainable Finance Roadmap

On 19 June, Treasurer Dr Jim Chalmers announced the government released its Sustainable Finance Roadmap, which will help investors, companies and the broader community make the most of the global net zero transformation. Among other priorities, Treasury’s Sustainable Finance Roadmap describes the priority to develop sustainable investment product labels and generally sets out the next steps for the implementation of the priorities.

The Treasurer states this Roadmap will help mobilise the significant private capital required for Australia to become a renewable energy superpower, modernise our financial markets and maximise the economic opportunities associated with net zero and our sustainability goals.

APRA releases digital Prudential Handbook

On 19 June, APRA issued a letter, ‘APRA’s new digital Prudential Handbook‘, to all regulated entities announcing the release of the new digital prudential framework in the form of the ‘Prudential Handbook’. 

The Handbook brings all of APRA’s prudential standards, guidance and supporting information into one place and presents them in a digital format that can be easily navigated and searched and caters to a range of different users across regulated industries and in the broader community. It is part of APRA’s strategic initiative to modernise the prudential architecture.

The digital Prudential Handbook can be accessed here.

APRA finalises cross-industry guidance on operational resilience

On 13 June, APRA released its finalised prudential practice guide to help banks, insurers and superannuation trustees strengthen their management of operational risk and improve business continuity planning.

The new Prudential Practice Guide CPG 230 Operational Risk Management (CPG 230) is designed to assist in the implementation of Prudential Standard CPS 230 Operational Risk Management (CPS 230), which was finalised in July last year and takes effect from 1 July 2025.

Key changes include:

• the guidance has been shortened and is more tightly focused on how to meet expectations set by the standard;
• entities classified as non-Significant Financial Institutions have an additional 12 months to comply with certain requirements in CPS 230 relating to business continuity and scenario analysis;
• APRA has included a ‘day one’ checklist for entities to assist in their implementation of CPS 230; and
• APRA has provided a three-year forward plan of its intended approach to supervising CPS 230 to assist industry with implementation and planning.

APRA clarifies expectations on cyber security and adequacy of backups

On 3 June, APRA wrote to all APRA-regulated entities emphasising the critical role of data backups in cyber resilience. APRA states this communication is part of APRA’s ongoing commitment to supervising cyber resilience across industry, as outlined in its Interim Policy and Supervision Priorities update.

The letter, ‘Security and adequacy of backups‘, details the common issues observed in backup practices that could hinder system restoration during an incident. APRA expects regulated entities to review their backup arrangements and address any identified gaps promptly.

This article was written with the assistance of Chaz Gillespie and Tristan Page, Law Graduates.