Gadens Regulatory Recap – 8 August 2024

This edition of the Gadens Regulatory Recap highlights recent developments from ASIC, APRA, OAIC, ACCC, and Treasury including various enforcement actions taken by the regulators.

ASIC

1. ASIC’s first greenwashing case results in landmark $11.3 million penalty for Mercer

The Federal Court has ordered Mercer Superannuation (Australia) Limited (Mercer) to pay $11.3 million in penalties in a “landmark” greenwashing decision. Mercer was found to have made various misleading ESG-related statements on its website regarding sustainable investment options offered by the Mercer Super Trust, on the basis that members who took up these investment options were ultimately invested in various industries (including fossil fuel extraction, alcohol production, and gambling) that Mercer’s website represented would be excluded. A copy of the court decision is available here.

You can read the full court decision in this landmark case here.

2. ASIC further extends transitional relief for foreign financial services providers

ASIC is extending for a further 12 months (to 31 March 2026) the transitional “sufficient equivalence” and “limited connection” relief for foreign financial services providers (FFSPs) from the requirement to hold an AFSL when providing financial services to Australian wholesale clients. This transitional relief is to cover the period until the new licensing exemption regime for FFSPs under the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 commences on 1 April 2025, subject to passage of the Bill through Parliament. FFSPs that are not currently subject to ASIC relief will be able to notify ASIC of their reliance on the new licensing exemption regime after it commences. FFSPs that have been, or are granted a foreign AFSL, will be able to continue to operate their financial services business in Australia under their AFSL.

3. New financial reporting and audit obligations for superannuation funds commence

On 1 July 2023, the Treasury Laws Amendment (2022 Measures No.4) Act 2023 came into force. The Act extends current financial reporting and auditing obligations for superannuation funds under Chapter 2M of the Corporations Act 2001. The expanded obligations aim to promote greater transparency and accountability in relation to superannuation funds. They include:

• the requirement to lodge audited financial reports with ASIC through the regulatory portal within three months of the end of the fund’s financial year;
• audited financial reports must include financial statements, auditors report, directors’ declaration and report including remuneration disclosure;

• Trustee directors are required to take all reasonable steps to comply with, or secure compliance with, financial record keeping and reporting obligations;

• Fund financial reports are required to be publicly available on the fund website; and
• Trustees will be subject to increased scrutiny as to the quality of the financial reports (in 2024, ASIC’s financial reporting and surveillance program will be reviewing these financial reports).

ASIC requests that reports be of high quality, containing meaningful information that builds trust and confidence in the integrity of the financial system.

4. ASIC report finds credit card debt still a pain for many Australians

On 30 July 2024, ASIC released the findings of its review of 20 million credit card accounts across 13 lenders over six years. The review which REP 788 Credit card lending in Australia: Staying in control (Report) documents focused on changes in card usage and indicators of problematic debt (where consumers have persistent high levels of debt, repeatedly make only minimum repayments or are in serious or severe delinquency), the impact of certain credit card features, and lenders’ implementation of the design and distribution obligations.

The Report identified that lenders could do more to assist consumers with their credit cards with better practices in five key areas, including helping consumers tackle problematic debt (eg by data driven triggers and education), use credit cards more effectively (eg by building in automatic or periodic repayments and transaction limits) and choose credit cards that suit the way they are likely to use them (eg by conducting ongoing assessment of how consumers are using high-interest rate or high-fee cards), helping consumers experiencing financial stress (eg by using data analysis to identify consumers at risk of hardship and communicating about assistance that may be available) and meeting their design and distribution obligations using objective parameters.

5. ASIC consults on rules to promote competitive outcomes in cash equity clearing and settlement services

For the first time ASIC is exercising its powers under the competition in clearing and settlement reforms and has released Consultation Paper 379 CS Services Rules (CP 379) on proposed rules for the facilitation of competitive outcomes in clearing and settlement ASX Group service providers.

ASIC is seeking feedback on its proposals to make regulatory expectations enforceable obligations and the imposition of additional requirements on service providers in key areas such as the management of intergroup conflict of interests and external assurances to promote fair and competitive pricing. Submissions close on 10 September 2024.

6. ASIC Enforcement Activities:

ASIC has been active in the enforcement space in the last fortnight.

• A Melbourne-based accountant has been convicted for falsifying signatures on over 80 documents relating to audits of the financial accounts of 12 separate clients. The individual purported to be a registered company auditor and has since been sentenced to 70 hours of community service and fined $22,500.

• A Melbourne-based credit licensee has been suspended from engaging in credit assistance activities for a period of six months until 18 December 2024. The individual has been expelled from AFCA due to non-payment of fees, had failed to lodge six annual compliance certificates, and had failed to pay industry funding levies owed to ASIC.

• A NSW-based adviser has been banned from providing financial services for five years after concerns were made in relation to financial product advice he provided, his management of conflicts of interest, and his involvement in a self-managed superannuation investment structure, particularly his failure to make reasonable enquiries into his clients’ financial situations. The AFS license of the individual’s business, Build Your Wealth Ltd, has also been cancelled.

• A Sydney director has been disqualified from managing corporations for 18 months following her involvement in the failure of two companies. The director fell short of the standards expected of her, engaged in insolvent trading, and failed to exercise her director’s duties with the required level of care and diligence.

• Id Funds Management Limited’s AFSL has been suspended as it failed to meet its statutory audit and financial reporting lodgement obligations.

• ASIC has initiated Federal Court civil penalty proceedings against COFCO International Australia Pty Ltd and COFCO Resources SA in relation to alleged manipulation of the ASX24 Eastern Australian Wheat futures market.

APRA

7. APRA lifts additional licence conditions from N.M. Super

APRA has lifted additional licence conditions that were originally imposed on N.M. Superannuation Proprietary Limited (N.M. Super) in 2019, on the basis that N.M. Super has now completed sufficient rectification work to address historical governance and risk management concerns, including remediation of affected members, as set out in a court enforceable undertaking given by N.M. Super in 2021.

8. APRA keeps macroprudential policy settings steady

Following its latest economic assessment, APRA has decided to maintain its current macroprudential policy settings. APRA’s decision reflects concerns about high household debt, inflation exceeding target levels and ongoing geopolitical instability. Despite these risks APRA noted that new housing loans are sound, though arrears are gradually increasing but remain below peak levels seen during COVID-19.

APRA emphasised that overall risk remains elevated due to the countercyclical capital buffer remaining at 1.0% of risk-weighted assets, the mortgage serviceability buffer remaining at 3 percentage points and no new lending limits being imposed. Despite this, credit growth for home purchases has reportedly normalised, and lending standards are generally sound. Business credit growth is above historical averages, however commercial property prices are declining. APRA will continue to monitor the situation and adjust policies if necessary to maintain financial stability.

9. APRA releases annual Private Health Insurance Coverage Survey

APRA has released its annual Private Health Insurance Coverage Survey for the December 2023 reference period. The Survey shows a 2.3% increase in the number of Australians with private health insurance for hospital cover, rising from 11,815,000 in December 2022 to 13,093,000 in December 2023. Full results of the survey are available here.

10. APRA finalises targeted changes to strengthen banks’ liquidity and capital requirements

APRA has finalised details of proposed new reforms to enhance banks’ liquidity and capital requirements to better prepare themselves for future stress events. Key changes proposed to be effective from 1 July 2025 include:

• Banks subject to the Minimum Liquidity Holdings regime must adjust the value of their liquid assets based on market price changes; and

• All banks must be operationally ready to provide key financial data when requesting exceptional liquidity assistance from the RBA.

APRA has indicated that it will delay the decision on removing bank debt securities from liquid asset calculations until a broader liquidity risk review next year, allowing for a more holistic view of the Minimum Liquidity Holdings regime.

In the interim, banks should diversify their liquidity portfolios and submit annual reviews by 1 July 2025. APRA has indicated that it will closely monitor banks with high concentrations of bank debt securities.

11. APRA completes program to modernise the prudential architecture

APRA has completed its multi-year project to modernise its regulatory framework with the release of the final version of its new digital Prudential Handbook. Launched in 2021, the Modernising the Prudential Architecture (MPA) initiative aimed to make APRA’s framework for banks, insurers, and superannuation trustees clearer, simpler, and more adaptable.

The key achievements of the MPA include better regulation by streamlining the framework into clear pillars, consolidating standards and guidance, creating a user-friendly digital format that centralises all prudential standards and related information, and designing the handbook to respond flexibly to emerging risks while integrating with the existing framework.

APRA Chair John Lonsdale noted that the project addresses the complexity and compliance burden of the previous framework, benefitting from significant input by industry and the RegTech sector. He emphasised that while the new handbook represents a major step forward, APRA will continue to seek feedback and refine the framework further.

AFCA

12. Independent Decision Review confirms AFCA’s commitment to fairness and impartiality

AFCA has engaged former Federal Court Judge Ms. Julie Dodds-Streeton KC and barrister Mr. Ahmed Terzic to review 30 randomly selected complaints determined between June 2022 and May 2023. The review found 90% of cases rated as “excellent to good”, 77% of cases rated as “excellent to very good”, and no cases rated as “poor”. Key findings included that AFCA effectively addressed special needs and vulnerabilities, procedural fairness was generally observed, and positive feedback was provided on teamwork and culture.

The review produced 12 recommendations, all of which AFCA accepted and will address through existing programs. For detailed findings, the full report is available on the AFCA website here.

ACCC

13. Dr Philip Williams appointed as ACCC Commissioner

The ACCC has announced the appointment of Dr. Phillip Williams AM as a Commissioner, for a five-year term commencing 27 June 2024. Dr. Williams role will focus on enhancing Australia’s merger laws and enforcing the Competition and Consumer Act.

The announcement also marks Commissioner Stephen Ridgeway’s transition to Associate Commissioner.

14. ACCC Welcomes start of consultation on draft merger reform laws

The ACCC has welcomed the Government’s consultation on draft legislation for proposed reforms to Australia’s merger laws. Chair Gina Cass-Gotlieb noted that these reforms aim to simplify the merger control framework, preventing harmful anti-competitive transactions and benefitting both consumers and businesses. She emphasised the importance of ensuring that the new framework does not introduce unnecessary complexity.

The government will also consult separately on the notification thresholds that determine which mergers must be reported to the ACCC. Cass-Gotlieb highlighted that setting appropriate thresholds is critical for the effectiveness of the new regime, aiming to balance scrutiny of potentially anti-competitive mergers with minimising regulatory burden on non-anti–competitive acquisitions.

Current issues with the merger laws include many transactions avoiding regulatory review, with only about 330 out of an estimated 1,000-1,500 annual mergers being notified to the ACCC. The reforms are intended to address these deficiencies.

Additionally, the Treasurer has appointed Andrea Gomes da Silva as an independent adviser to support the implementation of the reforms. Cass-Gotlieb welcomed Gomes da Silva’s international perspective and expertise, especially her experience from the UK competition regulator.

The ACCC will also renew and expand its Performance Consultative Committee, which will include diverse stakeholders to provide feedback on the ACCC’s merger review functions and other responsibilities.

15. DG Institute ordered to pay $14.7m in consumer refunds, and penalties of $5m, for misleading students in wealth seminar

The Federal Court has ordered Master Wealth Control Pty Ltd (DG Institute) to pay $5 million in penalties and $14.7 million in consumer redress for making false or misleading claims about its education programs, Real Estate Rescue and Master Wealth Control. The redress is to refund over 2,100 students who enrolled in the programs between April 2017 and November 2022.

Dominique Grubisa, the sole director of DG Institute, was also fined $1 million and disqualified from managing corporations for five years due to her involvement in the misleading practices.

The Court found that DG Institute made several false claims that were not accurate, including promises about protecting assets and selling properties of distressed homeowners to retain some equity. DG Institute and Ms. Grubisa were also restrained from making similar misleading statements for five years and were required to pay the ACCC’s legal costs.

16. The ACCC commences consultation on sustainability collaborations

The ACCC has released a draft guide to assist businesses in navigating competition law in the context of sustainability collaborations. The guide addresses the risk businesses face under competition law when working together to achieve positive environmental outcomes. It emphasises that while collaborative efforts can potentially breach competition law, businesses can seek ACCC authorisation to proceed without legal risk.

ACCC Acting Chair Mick Keogh highlighted the importance of these collaborations for environmental benefits during Australia’s shift to a sustainable economy. He noted that ACCC authorisation provides a legal exemption from competition provisions, enabling businesses to implement collaborations without fear of legal action due to the mandate to consider sustainability benefits when evaluating applications for authorisation, aiming to balance competition promotion with public interest in sustainability.

The guide outlines that ACCC authorisation may be granted when the public benefits of the collaboration outweigh any potential harm to competition. These benefits can include environmental improvements such as reduced greenhouse gas emissions, biodiversity protection, water systems benefits, or waste reduction.

The draft guide aims to clarify that competition law should not hinder collaborations that offer significant public benefits. The ACCC aims to finalise the guide by late 2024 after seeking feedback from stakeholders.

OAIC

17. Digital Platform Regulators Forum publishes strategic priorities

On 25 July 2024, the Digital Platform Regulators Forum (DP-REG) published its yearly wrap up for 2023-2024, in which it also set out its overarching goals and strategic priorities for 2024-2026. The DP-REG comprises four entities, being the ACCC, the Australian Communications and Media Authority (ACMA), the eSafety Commissioner and the OAIC.

The DP-REG set out its overarching goals and strategic priorities for all members for 2024-2026 under 3 main action items:

• building capacity;

• promoting regulatory coherence; and

• responding to emerging risks and opportunities.

To work towards these overarching goals, DP-REG members will share information and progress joint work to improve their capability, collaborate bilaterally and multilaterally to promote regulatory coherence and clarity and will engage in activities to educate and present to industry and government as a forum.

18. OAIC Submission to Online Safety Act 2021 Statutory Review

The OAIC has lodged submissions to the ongoing Statutory Review of the Online Safety Act 2021, stressing the need to balance online safety with fundamental rights like privacy and freedom of expression. The OAIC’s submissions contemplate that while privacy is crucial, there may be situations where a reasonable impact on privacy is justified for significant public safety objectives. The OAIC also notes that reforms to the Privacy Act are aimed at enhancing protections in the online environment, including clearer privacy settings and a Children’s Online Privacy Code.

The submission also addresses the complexities of maintaining online anonymity while ensuring accountability, supports a nuanced approach to age verification, and advocates for measures that are proportionate and mindful of privacy, similar to the UK’s Age-Appropriate Design Code. The OAIC indicated support for a flexible, principles-based regulatory framework that allows service providers to adapt measures based on specific risks and encourages the integration of privacy and safety considerations into service design, aligning with both privacy and safety objectives.

19. OAIC submission on Australian credit reporting framework review

The OAIC has made a submission to the Attorney-General’s Department review of Australia’s Credit Reporting Framework. The submission sets out a total of 17 recommendations to enhance the privacy protections of Part IIIA of the Privacy Act, which deals with the framework in conjunction with the Privacy (Credit Reporting) Code 2014 (Credit Reporting Code).

The OAIC built their recommendations in the recent summary on the 2021 review of the Credit Reporting Code, which they are required to review every 4 years to ensure it remains fit for purpose.

The OAIC’s recommendations dealt with a variety of issues, including but not limited to:

• Reviewing the objects of the Privacy Act in relation to the Credit Reporting Framework;

• Treatment of information where the statute of relations has been reached in relation to debt;

• Reporting of credit information and the relevance of data security to credit reporting information; and

• Amending the definition of ‘publicly available information’ in Part IIIA of the Privacy Act to clarify that court judgments cannot be considered ‘publicly available information.’

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Authored by:

Matthew Bode, Partner
Kelly Griffiths, Partner
Michael Kenny, Partner
Sinead Lynch, Partner
Daniel Maroske, Partner
Kate Mills, Partner
Caroline Ord, Partner
Tehlyn Murray, Associate
Patrick Simon, Associate
Bronte Anderson, Lawyer
Monica Baur, Lawyer
Declan Melia, Lawyer
Zoe Firmin, Lawyer
Wen Wong, Lawyer
Isabella Parsons, Graduate