Gadens Regulatory Recap – 26 June 2024

This edition of the Gadens Regulatory Recap highlights recent developments from ASIC, APRA, AFCA, AUSTRAC, OAIC, ACCC, Treasury, the Council of Financial Regulators, and legislative updates, including various enforcement actions taken by the regulators. 

ASIC  

1. ASIC grants class no-action position to second party opinion providers: On 14 June 2024, ASIC issued a class no-action position for second party opinion (SPO) providers who may be providing financial product advice which requires an Australian Financial Services Licence (AFSL) under section 911A(1) Corporations Act 2001 (Cth) (Corporations Act).  

The no-action position is only in relation to offers made to wholesale clients only given:

• it supports market integrity in sustainable finance; 
• it supports Australia’s approach to ensure sustainable financial practices are aligned with global best practice; and 
• the identified regulatory benefits outweigh regulatory detriment. 

The minimum regulatory conditions for SPO providers include: 

• the SPO is independent of the commissioning party;  
• the SPO is available in connection with an offer only made available to wholesale clients;  
• adequate conflict management arrangements are in place; and  
• certain disclosures are made alongside the SPO. 

The class no-action position remains effective until 15 June 2026 unless modified or revoked.  

2. Statement by ASIC Chair at Parliamentary Joint Committee inquiry on oversight of ASIC: On 14 June 2024, ASIC Chair Joe Longo appeared before the Parliamentary Joint Committee on Corporations and Financial Services, Oversight of ASIC, the Takeovers Panel and the Corporations Legislation. In his opening statement, Mr Longo highlighted the level of activity engaged in by ASIC, noting that the regulator has strong enforcement outcomes, with records showing that ASIC consistently obtains “materially higher penalties than it did a decade ago”. 

Mr Longo referred to recommendations made by the Financial Regulator Assessment Authority that ASIC uplift its data and technology capability, and highlighted ASIC’s intent to uplift cyber security and other technological capabilities. Specifically, Mr Longo noted the need for ASIC to upgrade its data and analytics capabilities, with 2.6 million documents seized and reviewed in 2023. Improvements to technology would reduce the manual efforts required by investigators, and facilitate more efficient investigations. Finally, Mr Longo noted that he has recently engaged with corresponding regulators internationally, and noted that challenges and priorities of ASIC’s peers are similar to those faced internationally. 

3. ASIC Enforcement Activities: Over the past fortnight, ASIC has engaged in a broad range of enforcement activities. 

On 18 June 2024, ASIC appealed the Federal Court’s decision to relieve Block Earner from liability to pay a penalty for contraventions relating to unlicensed financial services (as highlighted in the 11 June 2024 edition of the Gadens Regulatory Recap). ASIC’s appeal is on the basis of grounds including that the Court erred in relieving liability in all the circumstances, and that relief was granted in the circumstances where Block Earner made a profit from the contraventions. 

On 19 June 2024, the Federal Court issued interim orders to freeze the assets of the Shield Master Fund, a registered managed fund, in order to protect investor funds while ASIC undertakes an investigation relating to conduct highlighted by ASIC in February (and set out in the 21 February 2024 edition of the Gadens Regulatory Recap). As a result of the orders, the responsible entity, Keystone Asset Management Ltd is restrained from certain activities.  

On 20 June 2024, ASIC accepted a court enforceable undertaking from PKF Melbourne Corporate Pty Ltd (PKF). The undertaking follows an investigation undertaken by ASIC of files related to three independent expert report (IER) engagements that revealed concerns that PKF failed to have appropriately documented internal policies and procedures demonstrating compliance with AFSL holder obligations, appropriately document the assessment of the competence of technical specialists, and appropriately manage review of internal policies and procedures to ensure amendments were made to reflect changes in law, regulatory guidance, or professional practice. 

On 21 June 2024, the Federal Court found that iSignthis Ltd (iSignthis) engaged in a range of contraventions of the law between 2018 and 2020. The former managing director and chief executive officer, Mr Nickolas Karantzis, was also found to have breached his director duties, and breached the law by failing to ensure that the ASX was not provided with information that was false or misleading. Specifically, the Court found that iSignthis engaged in misleading or deceptive conduct by representing that less than 15% of the company’s total revenue in the fourth quarter to 30 June 2018 was from one-off or set-up fees, and a failure to disclose the termination of a relationship with VISA, as well as VISA’s reasons for termination. ASIC has indicated an intention to seek pecuniary penalties against iSignthis and that Mr Karantzis be disqualified from managing corporations. 

APRA  

4. APRA issues finalised prudential practice guidance on Operational Risk Management: On 13 June 2024, APRA released the Prudential Practice Guide CPG 230 Operational Risk Management (CPG 230) to assist with the implementation of Prudential Standard CPS 230 Operational Risk Management (CPS 230) which takes effect from 1 July 2025. 

CPG 230 provides assistance to insurers, banks and superannuation trustees to strengthen operational risk management and improve business continuity planning, with key changes including:  

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

The purpose of CPG 230 is to keep industry standards high by ensuring the safeguard and resilience of operations, whilst balancing the compliance burden on smaller entities to ensure they can remain competitive. 

5. APRA finalises superannuation prudential framework amendments for audit: On 18 June 2024, APRA finalised its consultation on amendments to the superannuation prudential framework for audit, following consultation that commenced on 17 January 2024. The proposed changes would amend the prudential framework for superannuation and reflect legislative reforms relating to financial reporting and audit requirements, including removing the requirement for a Registrable Superannuation Entity auditor to use a specific APRA-approved form, and retiring Prudential Practice Guide SPG 310 Audit and Related Matters. Key submissions, and APRA’s responses include:

• that the proposed expanded scope of reasonable assurance and audit requirements was too broad, and had the potential to expose members to additional costs. As a result, APRA determined not to expand the scope of the requirements at this time, and introduced Attachment B within SPS 310 to specify the scope of requirements; 
• the retirement of SPG 310 would be inappropriate given that it is still relied upon by entities winding up, resulting in APRA introducing Attachment A of SPS 310 to apply to entities winding up; and 
• a number of other minor and consequential amendments were raised in submissions, resulting to further amendments to various other guidance, with APRA providing both a summary of the amendments, and versions showing tracked changes. 

6. APRA releases new Prudential Handbook: On 19 June 2024, APRA released its new Prudential Handbook, which consolidates APRA’s policy standards, guidance, and supporting information to allow users within regulated industries, as well as the broader community, to better understand and comply with APRA’s standards. 

The “Prudential Handbook” is categorised into pillars, with four pillars being applicable to all industries and the fifth dependant on the industry, being: 

• Governance; 
• Risk Management; 
• Recovery and Resolution; 
• Reporting;  
• Financial Resilience for the banking and insurance industry; and 
• Business Operations for the superannuation industry.  

7. APRA releases SPS 530 Valuation Governance Framework Self-Assessment Survey observations: On 19 June 2024, APRA released a letter highlighting key observations from the SPS 530 Valuation Governance Framework Self-Assessment Survey (Survey). Conducted in late 2023, the Survey assessed implementation by RSE Licensees (RSELs) of APRA’s heightened requirements that RSELs have a comprehensive asset valuation governance framework and which is capable of timely mitigation of risk.  

APRA Deputy Chair Margaret Cole noted the following key observations from the Survey:  

• a majority of the surveyed RSELs demonstrated better practices, including having appropriate checks and controls for external valuation ranges and an audit focus on unlisted asset valuations; and 
• room for improvement was identified in the areas of revaluation triggers, valuation frequency and degree of Board scrutiny in respect of unlisted asset valuation.  

AUSTRAC  

8. Federal Court approves penalty in SkyCity matter: On 7 June 2024, the Federal Court of Australia delivered a $67 million penalty to SkyCity Adelaide Pty Ltd (SkyCity) for breaching the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act). The joint submissions filed by AUSTRAC and SkyCity were that the penalty be set at $67 million, as covered in the Gadens Regulatory Recap on 29 May 2024. Justice Lee broadly agreed with the joint submissions filed by the parties and made orders requiring SkyCity to pay the agreed penalty. As part of the settlement reached by the parties, SkyCity admitted to contraventions of the AML/CTF Act, with the penalty reflecting SkyCity’s cooperation during the investigation and its early admission of wrongdoing.
    
9. AUSTRAC CEO delivers speech at ACAMS Conference: On 19 June 2024, AUSTRAC CEO, Brendan Thomas, delivered a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) Conference. Mr Thomas highlighted the ‘Tranche 2 reforms’ to address expansion to the AML/CTF regime to expand regulation to professional service providers, such as lawyers, accountants, and real estate agents. Mr Thomas highlighted AUSTRAC’s enduring regulatory priorities, being: 

• Managing money laundering and terrorism financing risk, and ensuring that entities appropriately understand the nature of these risks; 
• Facilitating high quality reporting from industry partners; 
• Ensuring that reporting entities have effective AML/CTF programs; and 
• Focusing regulatory efforts on high-risk sectors, being banking, gambling, and remittance sectors. 

In 2024, AUSTRAC has also focused on digital currency exchanges, payment platforms, bullion dealers, corporate bookmakers, and the non-bank lending sectors, primarily due to concerns about AML compliance, rapid and significant growth, and concerns highlighted by AUSTRAC’s enforcement partners. 

OAIC 

10. OAIC publishes review of Information Publication Scheme: On 12 June 2024, the OAIC released its third five-yearly review of the Information Publication Scheme (IPS), which mandates agencies to publish a wide range of information online and encourages proactive information disclosure. The 2023 review, based on a survey conducted in late 2023, highlighted the need for increased proactive information release by government agencies, in accordance with the Freedom of Information Act 1982 (Cth) (FOI Act). 

Key findings of the review included: 

• that 94% of agencies reported that they had reviewed the way in which their IPS operates; 
• only 29% of agencies reported that they have implemented strategies to increase access to information held, which is a decrease from 35% in 2018; 
• that there is a decreasing trend for the routine publication of information released in response to freedom of information requests, with only 79% of agencies reporting (compared to 79% in 2018 and 86% in 2012); and 
• only 20% of agencies reported that they maintain an IPS information register (compared to 38% in 2018), and only a minority of these indicated regular reviews (20% indicating reviews every six months, and 28% indicating reviews every 12 months). 

While the review found room for improvement in various areas, the OAIC indicated that the results demonstrated various positive improvements, and that the results will help to support agencies to better comply with their obligations and promote public access to information as intended by the FOI Act. 

AFCA 

11. AFCA seeks feedback on proposed Approach document schedule for 2024-2025: On 13 June 2024, AFCA announced that it was seeking feedback on its proposed annual Approach document schedule for the financial year 2024-2025. The Approach documents, which aim to assist consumers, financial firms, and the business sector to understand the approach that AFCA takes in making decisions, aim to enhance the transparency and consistency of AFCA’s decision-making process.  

AFCA proposes to develop new Approach documents relating to sections 29(6) and (7) of the Insurance Contracts Act 1984 (Cth), claims handling in general insurance, non-disclosure and misrepresentation in life insurance, and the duty to take reasonable care to not make a misrepresentation in both the general and life insurance sectors. AFCA will also amend Approach documents relating to various superannuation, general insurance, and life insurance sectors, as well as the development of materials relating to emerging issues, such as scams. 

ACCC 

12. National Anti-Scam Centre joins Australian Financial Crimes Exchange: On 13 June 2024, it was announced that the National Anti-Scam Centre would join the Australian Financial Crimes Exchange (AFCX) intel loop. The intel loop provides participants with near real time information sharing relating to information and tools utilised by scammers, such as scam phone numbers, URLs, and bank accounts. As a result of the intel loop, information shared between participants can be used to prevent further scam activity, regardless of whether the scam is reported to Scamwatch, a bank, or telecommunication provider, with participants of the AFCX including the major banks and telecommunication providers, and EFTPOS. Increased data sharing was previously a recommendation set out in the National Anti-Scam Centre’s Investment Scam Fusion Cell report in May this year.  

Treasury 

13. Treasury commences consultation on Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024: On 11 June 2024, Treasury commenced a consultation on the Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024, which are consequential amendments that support the implementation of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (the Amending Bill). As part of the consultation process, Treasury has released an exposure draft of the draft regulations, as well as an explanatory statement. 

Broadly, the purpose of the draft regulations is to: 

• facilitate satisfaction of written information or documentation requirements under section 99F of the Superannuation Industry (Supervision) Act 1993 by electronic means; 
• remove references to civil penalties and requirements related to Fee Disclosure Statements that are removed in the Amending Bill, and update record keeping obligations for new consent requirements; 
• align the requirements for Financial Services Guides and Website Disclosure Information; 
• streamline conflicted remuneration regulations in line with the Amending Bill; and 
• ensure the informed consent requirements apply for benefits given in relation to general insurance products where personal advice is provided. 

The consultation closes on 8 July 2024. 

14. Treasury publishes Sustainable Finance Roadmap: On 19 June 2024, the Treasury published the Government’s Sustainable Finance Roadmap, which sets out the Government’s plan for the implementation of sustainable finance reforms and identifies priorities to facilitate the growth of the sustainable finance industry, including addressing greenwashing, improving access to climate and emissions data, and better understanding climate risks and opportunities. 

The Sustainable Finance Roadmap sets out the steps that need to be taken to: 

• implement the Government’s mandatory corporate climate disclosure regime; 
• finalise Australia’s Sustainable Finance Taxonomy; 
• develop investment product labelling requirements for products marketed as sustainable; and 
• develop best practice guidelines for businesses on how net zero transition plans are to be disclosed. 

15. Treasurer announces review of banking competition: On 15 June 2024, the Treasurer announced that a review will be undertaken into various challenges faced by small and medium sized banks. This review will be led by the Council of Financial Regulators in consultation with the ACCC. 

The review is set to focus on the role that small and medium sized banks have in creating competition within the banking sector and aim to propose improvements in the regulation and oversight of these banks to best balance competition, innovation and stability. The review will also aim to assess the way in which small banks source funding, and consider whether regulatory arrangements for new entrants can support additional competition in the industry.  

Council of Financial Regulators 

16. CFR publishes Quarterly Statement: On 11 June 2024, the Council of Financial Regulators (CFR) issued its Quarterly Statement, following its meeting on 7 June 2024. Broadly, the CFR discussed a range of vulnerabilities impacting the financial sector, as well as the various actions that are being taken by the regulators to mitigate these concerns, including increased engagement with the industry, and remedying existing information gaps. The CFR also considered: 

• risks to the financial sector that specifically impact lending to households and businesses, such as the increased number of borrowers unable to meet their debt repayments; 
• steps that can be taken to strengthen the financial system specifically relating to the geopolitical environment, and the recommendation that financial institutions incorporate geopolitical risk into their risk-management frameworks; 
• the use of new technology in the financial system, particularly the expected broader adoption of artificial intelligence and the opportunity for increased productivity, with the regulators agreeing to engage with industry and to monitor the adoption of artificial intelligence; 
• the recommendations made by the Parliamentary Joint Committee report into competition in clearing and settlement and the ASX Clearing House Electronic Subregister System (CHESS) Replacement Project; and 
• other initiatives, including challenges associated with the cash-in-transit industry and the introduction of a financial sector regulatory initiatives grid. 

Legislative Updates 

17. Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 introduced: On 5 June 2024, the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 was introduced before the House of Representatives. 

If passed, the legislation will have various impacts on the Buy Now Pay Later (BNPL) industry, including: 

• requiring BNPL providers to obtain and maintain an Australian Credit Licence; 
• requiring BNPL providers to comply with the obligations of a credit licensee, and responsible lending obligations; 
• apply the Credit Code to BNPL contracts; and 
• establish low-cost credit contracts as a new category of regulated credit. 

The introduction of the bill follows the release of draft legislation in March 2024, which Gadens addressed here.

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Authored by: 

Caroline Ord, Partner 
Sinead Lynch, Partner 
Kate Mills, Partner 
Michael Kenny, Partner 
Daniel Maroske, Partner 
Kelly Griffiths, Partner 
Matthew Bode, Partner 
Anna Fanelli, Senior Associate 
Zira Norman, Senior Associate
Patrick Simon, Associate
Tehlyn Murray, Associate
Bronte Anderson, Lawyer
Jin Lim, Lawyer
Fiona Ng, Lawyer
Ellie Pitcher-Willmott, Lawyer
Monica Baur, Solicitor