Gadens Regulatory Recap – 27 June 2023

This edition of the Gadens’ Regulatory Recap considers a series of updates from ASIC, APRA, AUSTRAC, ACMA and Treasury exploring a number of significant policy and legislative updates, as well as details on the latest enforcement actions being taken by the regulators.

ASIC

1. ASIC invites entities to assess their cyber resilience: ASIC has invited ASIC-regulated entities to voluntarily participate in an anonymous survey to measure Australia’s cyber resilience in financial and corporate markets. Recent high-profile cyber-attacks have demonstrated the need for all businesses to have robust cyber capabilities and ASIC’s cyber pulse survey is designed to help entities assess their ability to detect, respond to and recover from cyber security incidents, manage and govern organisational-wide cyber risks and, identify and protect critical business assets. ASIC has made the survey accessible via its ASIC Regulatory Portal.
2. ASIC grants relief to insurers from certain transaction confirmation requirements: ASIC has announced it has granted limited relief to life and general insurers from the transaction confirmation requirements of section 1017F of the Corporations Act 2001 (Cth) (Corporations Act). Two legislative instruments have been established to provide relief to overcome the unintended and unforeseen result of the existing legislative framework.

The first relief instrument relates to deceased life insurance policy holders and seeks to provide legal certainty where a policy holder is deceased and there is no alternative policy holder. In these circumstances, there is no impediment on insurers in providing confirmation of transactions to a third-party beneficiary seeking to claim on the deceased’s policy. The second relief instrument relates to recurring benefit payments and seeks to permit life and general insurers to provide confirmation in the form of a statement given before a transaction in limited circumstances and for a period of no may than six months into the future.

3. Comments on ESG: On 13 June 2023, ASIC Chair Joe Longo made a speech to the Committee for Economic Development State of the Nation Conference addressing ESG changes and the need for companies and investors to prepare appropriately. Mr Longo referred to three megatrends particularly relevant in the ESG space:

• climate change adaptation and the protection of people’s livelihoods, infrastructure, and quality of life as we experience the effects of climate change
• the global push to reach net zero, protect biodiversity and efficient use of resources
• elevating diversity, equity, and transparency in business, policy, and community decision making.

Mr Longo noted that ASIC continues to engage with key stakeholders, emphasising the importance of sustainable finance as a strategic priority for the regulator. It was noted that ASIC is engaging with both domestic stakeholders and international regulators as part of its membership of the global sustainable finance taskforce facilitated by the International Organisation of Securities Commissions.

4. Senate Economics References Committee – Inquiry into ASIC Investigation and Enforcement: On 23 June 2023, ASIC Chair Joe Longo spoke before the Senate Economics References Committee in relation to the Inquiry into ASIC investigation enforcement, which we have previously written about here. The Interim Report, released this month, was highly critical of ASIC and its cooperation with the Inquiry. In response, Mr Longo stated that ASIC “unequivocally rejects any assertion of an intent to obfuscate or obstruct the Committee” and that “there are limits to what documents [ASIC] can share.”

Mr Longo also rejected the conclusion in the Interim Report that ASIC is a weak corporate regulator and referred to ASIC’s enforcement record over the past three years. Mr Longo noted that ASIC has:

• commenced more than 125 criminal actions, resulting in 92 criminal convictions and 39 custodial sentences, and well over $2 million in fines;
• commenced almost 200 civil actions in the same period, with more than 130 successful civil claims and more than $500 million in court-imposed penalties; and
• commenced 33 insider trading investigations, laid 29 charges against nine individuals, and obtained six criminal convictions in the last three years.

The Inquiry continues, with a final report due by the last sitting day in June 2024.

5. Enforcement: Consistent with the statements of Mr Longo above, enforcement continues to be a priority of ASIC, with various enforcement action taken over the last fortnight. ASIC has continued to cancel AFSLs and ban directors, as well as obtaining a court enforceable undertaking from a Brisbane financial adviser for a failure to keep adequate records. An infringement notice of $333,000 has also been issued for seven breaches of Rule 5.9.1 of the ASIC Market Integrity Rules (Securities Markets) 2017. Separately, the Federal Court has issued travel restraint orders to prevent a former financial adviser from leaving the country whilst ASIC continues its investigation. Finally, the former CFO of Big Un Limited was charged with insider trading contrary to s1043A(1) of the Corporations Act.

6. ASIC calls on super trustees to appropriately deal with member money when it is first received: On 26 June 2023, ASIC called on superannuation trustees to ensure they are meeting their legal obligations for dealing with member money when it is first received if a new or increased interest in a super product cannot be issued by the next business day. The call follows a review of 12 superannuation trustees, with those with deficiencies making changes for dealing with application monies (including using a designated trust account and holding application monies in it for the required time), improving disclosures about application monies and/or formally notifying ASIC of a reportable situation or paying remediation.

APRA

7. APRA consults on amendments to prudential framework for ADIs and insurers: APRA is consulting on minor amendments and updates to the prudential framework for ADIs and insurers. The amendments will not materially affect any current policy settings, instead they seek to streamline and modernise the prudential literature through providing greater technical clarity to stakeholders. The proposed amendments of note include:

• Refining the scope of the Prudential Standard APS Capital Adequacy: Counterparty Credit Risk to specifically exclude non-significant financial institutions.
• Clarifying the treatment of collateral outflows by ADIs in Prudential Standard APS 210 Liquidity.

8. APRA publishes letter to banks on exceptions to home lending standards: On Friday 9 June, APRA published a letter to ADIs doubling down on how it expects banks to manage its exceptions to housing lending policy. Given current economic conditions, banks have been tweaking their exceptions policies to accommodate, and approve loans to, borrowers who now may not meet the 3% serviceability buffer (one of the criteria used to assess a borrower’s repayment capacity).

In its letter, APRA has forewarned that banks with larger amounts of policy exceptions will be subject to greater scrutiny and has called for ADIs to continue to manage risk by:

• continuing to prudently assess borrowers’ repayment capacities;
• using the exceptions policy sparingly; and
• regularly reporting exceptions internally.

9. APRA fines OnePath Custodians for failing to direct member contributions
   to a MySuper Product: APRA has imposed a fine of close to $1.5 million on OnePath Custodians Pty Ltd (OPC) for failing to direct member contributions to a MySuper product. Under the Superannuation Industry (Supervision) Act 1993 (Cth), trustees are required to direct member contributions to a MySuper product when the member has not advised the trustee where their money should be invested. APRA’s infringement notices imposed a cumulative penalty of $1,464,350 for failure to direct 125 default member contributions to MySuper products from mid-2022, with the requirement that member funds cannot be used to pay the fine.
10. APRA take action against Medibank Private in relation to cyber incident: APRA has announced that it will be imposing an increase of $250 million to Medibank’s capital adequacy requirements in response to the major cyber incident of October 2022. The capital adequacy adjustment will be effective from 1 July 2023 and will be applied to Medibank’s operational risk charge. The adjustment will remain in place until such time as an agreed remediation program of work is completed to APRA’s satisfaction.
    

AUSTRAC

11. New website: AUSTRAC will be launching a new updated website on 27 June. It will have a fresh and contemporary look and new structure to make it easier to find information.
12. New e-Learning Modules on Enhanced customer due diligence and Suspicious matter reports: AUSTRAC has released new e-Learning modules to assist companies in understanding and complying with AML/CTF obligations. The new modules are specifically designed to help reporting entities understand obligations relating to enhanced customer due diligence (ECDD) and suspicious matter reports (SMRs), and supplement the existing e-Learning modules, including two designed for entities undertaking identification for non-individual customers released in April.

Treasury

13. Government Response to the Quality of Advice Review: The Government has issued its response to the Quality of Advice Review, in a publication entitled Delivering Better Financial Outcomes. The response notes that the majority of the Quality of Advice recommendations will be adopted and noted that the packages of reforms will be progress across three streams, namely:

• Removing red tape by consolidating fee documents, allowing greater flexibility in how financial services guides are issued, removing safe harbour steps from the Best Interest Duty and replacing lengthy Statement of Advice documents with a fit-for-purpose financial advice record.
• Expanding access to retirement income advice by expanding the provision of personal advice by superannuation funds to their members.
• Exploring new channels for advice, potentially by other financial institutions, by considering the expansion of the definition of person advice and introducing a good advice duty.

14. Draft Financial System and Regulator Metrics Framework: The Financial Regulator Assessment Authority (FRAA) has released a consultation paper seeking feedback on the Draft Financial System and Regulator Metrics Framework, developed to enhance its ability to assess the effectiveness and the capability of APRA and ASIC. The consultation paper states that the metrics framework has been designed to form part of the FRAA’s broader methodology, with operational indicators such as stakeholder liaison, case studies, and surveys intended to remain the primary assessment tool. The metrics are expected to identify significant changes or trends that may warrant further examination.

The consultation is open until 27 July 2023.

15. Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Bill 2023 passes: On 22 June 2023, the Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Bill was passed. This scheme, which was a recommendation in both the 2017 Ramsay Review and the 2019 Hayne Royal Commission, will provide compensation of up to $150,000 to eligible consumers who have unpaid AFCA determinations relating to financial advice, credit intermediation, securities dealing, and credit provisions.

While an independent not-for-profit company will be responsible for managing access to compensation, AFCA will assist in the preparation of the scheme, with consumers expected to be in a position to lodge claims for compensation from April 2024.

ACMA

16. New ACMA powers to combat misinformation and disinformation: The Government has released the draft Communications Legislation Amendment (Combatting Misinformation and Disinformation) Bill 2023 (Bill). If passed, the Bill will establish a new legislative framework for the regulation of misinformation and disinformation on online platforms. The Bill will grant the Australian Communications and Media Authority (ACMA) a range of powers including:

• information-gathering powers, including the power to obtain Australia-specific data on the measures digital platform providers are taking to address misinformation;
• the power to make record keeping rules, requiring platform service providers to maintain and provide the ACMA with records of locally relevant data on measures to address misinformation and disinformation;
• reserve powers to register and enforce industry codes; and
• reserve powers to make industry standards.

It is not proposed that the ACMA will have the power to request specific content or posts be removed from digital platform services – a move that may be seen by many as the regulator shying away from the ‘too hard’ task of direct provider regulation.

The guidance note to the Bill indicates that the Government’s preferred approach is an effective self-regulatory scheme. However, the Bill proposes to develop a new code of practice, for the ACMA to enforce, to supplement and support the current voluntary code in place if the ACMA considers the voluntary code provides inadequate protection (the latter which has been signed up to by a small number of key players only – the mandatory code if enacted would apply to all digital platform service providers where imposed by ACMA).

The ACMA is inviting feedback from stakeholders, experts and the broader community on the draft of this Bill. Submissions are due by midday on 6 August 2023.

We will be providing a more detailed client alert on the Bill shortly.

Other

17. Banking Code Compliance Committee release report on management of deceased estates:

The Banking Code Compliance Committee has recently published a report regarding the management of deceased estate customers at selected banks, and whether compliance with Chapter 45 of the Banking Code of Practice was being met. From a high-level overview, the BCCC’s inquiry found poor practices, and serious and systemic non-compliance with the Code.  Their inquiry found that fees were still being charged to deceased customers for services that were no longer provided to them, that obligatory timeframes were failing to be met, and that a general lack of respect and compassion to the families was continuing.

In response to the Inquiry’s findings, the BCCC provided useful recommendations that the banks should take into consideration and implement so that they can successfully adhere to and comply with their obligations and duties prescribed in the Code.

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Authored by: 

Matthew Bode, Partner
Kate Mills, Partner
Kelly Griffiths, Partner
Michael Kenny, Partner
Sinead Lynch, Partner
Caroline Ord, Partner
Daniel Maroske, Director
Anna Fanelli, Senior Associate
Zira Norman, Senior Associate
Philip O’Brien, Senior Associate
Elizabeth Ziegler, Senior Associate
Nigel Mok, Associate