Gadens Regulatory Recap – 12 July 2023

This edition of the Gadens’ Regulatory Recap highlights recent developments from ASIC, APRA, AUSTRAC, ACCC and Treasury, and updates on measures including the climate-related financial disclosure regime, de-banking, the ALRC Interim Report C on financial services legislation, and a FAR update.

ASIC 

1. ASIC warns super trustees to consolidate duplicate member accounts: On 29 June 2023, ASIC announced that it is considering further regulatory action for more serious concerns identified as part of its review of whether superannuation trustees are effectively meeting their obligation to consolidate duplicate member accounts. The concerns raised by ASIC include:

• no clearly documented procedures for identifying duplicate accounts
• a lack of best interest assessments to ensure duplicate accounts were merged
• contacting of members regarding duplicate accounts and directions as to consolidation
• oversight of the process and a lack of internal policies.

2. ASIC acts to ensure better banking outcomes for Indigenous consumers: ASIC’s Better Banking for Indigenous Consumers Project review of target market determinations (TMDs) found that many Indigenous consumers were in high-fee accounts, despite being eligible for low-fee accounts and that the process to transfer to low-fee accounts was ineffective. The review revealed that:

• over 110,000 consumers in locations with higher-than-average populations of First Nations people and in receipt of AbStudy payments are in high-fee accounts, despite low-fee eligibility
• consumers incorrectly in high-fee accounts paid more than $6 million in fees over a twelve-month period
• as a whole, banks are aware of high numbers of customers eligible for low-fee accounts, but existing processes to migrate eligible customers are ineffective.

ASIC has written to banks detailing the key findings and requested they take steps to migrate eligible customers to low-fee accounts on an ‘opt out’ basis, ensuring fees are removed where appropriate, and remediate impact customers.

3. Enforcement: ASIC continues to demonstrate that enforcement is a strategic priority, with the regulator taking various enforcement actions in the last fortnight. ASIC has continued to issue stop orders relating to deficiencies in TMDs, having issued 38 interim stop orders relating to 67 pet insurance products. These stop orders are the first use of ASIC’s stop order powers relating to insurance products. ASIC has also obtained a travel restraint, obtained an enforceable undertaking (and a record $4.5 million penalty) from Openmarkets Australia Limited, banned directors for involvement in failed companies, and disqualified a director for engaging in illegal phoenix activity. Separately, an accountant has been charged with criminal offences in contravention of s83A(1) of the Crimes Act 1958 (Vic) for allegedly falsifying the signatures of registered company auditors on multiple documents. The Federal Court has also imposed combined penalties of $13.5 million on Select AFSL Pty Ltd (and related companies) for engaging in unconscionable conduct and contraventions of other financial services laws in the sale of life, funeral, and accidental injury insurance.

APRA 

4. APRA fines BNK for failing to meet data reporting requirements: On 4 July 2023, APRA announced it had fined BNK Banking Corporation Limited (BNK) $247,000 for failing to report data in accordance with the requirements of the Financial Sector (Collection of Data) Act 2001 (Cth). For the month ending 28 February 2023, BNK was 32 days late in filing statistical reports under the Economic and Financial Statistics program. APRA noted that compliance with its reporting standards is critical for the effective monitoring of the stability and safety of Australia’s banking, superannuation and insurance systems and have provided BNK until 1 August to pay the fine.

AUSTRAC 

5. AUSTRAC finalises external audit of Bell Financial Group: AUSTRAC has recently announced the finalisation of the external audit of the Bell Financial Group’s compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1), following the appointment of an external auditor in February 2022. Upon review of the final audit report for each entity, AUSTRAC has determined that there is no further regulatory action needing to be undertaken at this time. AUSTRAC will, however, continue to work with the Bell Financial Group to ensure ongoing compliance and the implementation of the remediation and uplift programs.
6. AUSTRAC Case Study: suspicious matter reports: AUSTRAC has recently provided a real-world example of suspicious matter reports (SMRs) in action, and how they can assist law enforcement in piecing together, identifying, and ultimately stopping criminal behaviour. Following a series of SMRs being lodged by a digital currency exchange, AUSTRAC worked with other Australian government agencies to trace blockchain activity to identify and subsequently apprehend an alleged darknet market vendor. The suspect allegedly received more than $1.4 million in cryptocurrency in exchange for supplying cannabis.

ACCC 

7. National Anti-Scam Centre’s first fusion cell to disrupt investment scams: The recently established National Anti-Scam Centre has announced a joint initiative by ACCC and ASIC to combat the increasing prevalence of investment scams in Australia. Termed a ‘fusion cell’, the joint taskforce will involve coordination between regulators and industry representatives to identify and implement methods for disrupting investment scams, including:

• information gathering and sharing
• early intervention
• removing investment scam websites from the internet
• identifying intelligence to refer to law enforcement in Australia and overseas.

The National Anti-Scam Centre forms part of the Government’s broader Strategic Plan to reform the payments system regulatory landscape in Australia.

Treasury 

8. Second consultation for climate-related financial disclosure regime: Treasury has published a second consultation paper regarding a proposed policy regime that will aim to align Australian climate-related financial disclosure obligations with the ISSB’s new global standards. The regime will impose new obligations on certain Chapter 2M reporting entities to disclose ‘financially material’ information about climate and sustainability-related risks and opportunities, particularly in relation to governance processes, greenhouse gas emissions, climate resilience assessments, and transition plans. Participation in the regime is proposed to be phased in over a transition period, with employee, asset value and consolidated revenue qualification thresholds for reporting obligations gradually reducing each income year until 30 June 2027.
9. Government response re de-banking: The Government has issued a response recognising the importance and its commitment to taking action on de-banking. Responding to the Council of Financial Regulators’ (CFR) advice, the Government fully supports and agrees to the following CFR recommendations:

• the voluntary collection of de-banking data by the four major banks
• compliance measures to improve transparency and fairness in relation to de-banking
• guidance provided by the four major banks applicable to digital currency exchanges, FinTech and remittance sectors
• increased government consideration to funding target education, outreach and guidance.

Other 

10. ALRC Interim Report C: On 22 June 2023, the Attorney-General tabled ALRC Interim Report C in Parliament with its focus on addressing the complexity and incoherence of the current corporations and financial services legislative framework. The report contains a raft of recommendations, questions and proposals seeking to elicit feedback from stakeholders as to how to best restructure and reframe the current legislation to make it easier to navigate. Submissions to the ALRC close on 26 July 2023.
11. FAR update: The Financial Accountability Regime Bill 2023 and Financial Accountability Regime (Consequential Amendments) Bill 2023 (FAR Bills) remain before the Senate, following the reintroduction before the House of Representatives earlier this year. Despite speculation that the FAR Bills would be considered and passed in June, the legislation remains unconsidered. The Senate is next due to sit on 31 July 2023, with the FAR Bills listed in the Senate Notice Papers for consideration.

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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
Anna Fanelli, Senior Associate
Zira Norman, Senior Associate
Philip O’Brien, Senior Associate
Elizabeth Ziegler, Senior Associate
Nigel Mok, Associate
Patrick Simon, Associate
Emma Bolton, Solicitor (Lavan)
Jethro Schoeman, Solicitor