Gadens Regulatory Recap – 8 August 2023

This edition of the Gadens’ Regulatory Recap highlights recent developments from ASIC, APRA, AFCA, OAIC, ACCC, ATO, AUSTRAC and Treasury, including various enforcement actions taken by the regulators, and regulatory guidance relating to scams. 

ASIC 

1. ASIC warns of further action against market misconduct: ASIC has issued a warning that the strong enforcement action relating to market misconduct seen in 2023 to date will continue in order to protect consumers and maintain market integrity. 

From 1 January to 30 June 2023, ASIC’s enforcement outcomes have included: 

• 125 criminal charges laid against individuals prosecuted; 
• $109.1 million in civil penalties imposed by the courts; 
• 70 investigations commenced; 
• 144 investigations ongoing; 
• 19 individuals disqualified or removed from directing companies; and 
• 46 individuals banned or suspended from providing financial services or engaging in credit activities. 

2. Enforcement: As indicated above, ASIC continues to take a strong approach to enforcement with varied enforcement actions taken over the past fortnight. ASIC has cancelled the AFSL of a licensee for failure to prepare and lodge financial statements and auditor opinions, imposed additional conditions on a licensee following targeted surveillance that indicated the AFSL holder was not adequately monitoring and supervising representatives, and suspended the AFSL of a licensee for failure to maintain the financial position required by not having sufficient net assets to meet licence conditions. ASIC has also appointed Morgan Stanley to sell shares in The Market Herald Limited, following a previous declaration by the Takeovers Panel of unacceptable circumstances. 

ASIC has also commenced several civil penalty proceedings. As previously highlighted by Gadens, ASIC has commenced civil penalty proceedings in relation to alleged greenwashing by Vanguard Investments Australia. ASIC has applied to the Federal Court to wind up the A Team Property Group and taken civil action against its director for alleged unlicensed conduct and operation of unregistered managed investment schemes, commenced proceedings against the director of Dixon Advisory & Superannuation Services Pty Limited for alleged breaches of directors duties, and commenced the first design and distribution proceedings against eToro for failure to adequately define a target market to protect consumers from high-risk CFD products. Gadens has previously written about ASIC’s approach to the design and distribution obligations here. 

Finally, a former investment manager has been charged with four counts of making a false document to obtain a financial advantage following a referral from ASIC; a former director who encouraged investors to rollover superannuation into SMSF to lend funds to his companies pled guilty to two counts of dishonest conduct and two counts of failing to discharge his duties as a director in the best interests of a company; and a former company director was sentenced to a 12-month good behaviour bond after being convicted for providing false information to the ATO. 

3. Temporary relief for Funeral Saver Safety Net granted: ASIC has recently announced that temporary and narrow legislative relief has been granted in respect of the ‘Funeral Saver Safety Net’ scheme to be distributed by Lifeplan Australia Friendly Society Limited. 

The scheme is an initiative intended to assist customers who satisfy relevant eligibility criteria with funeral expenses in circumstances where they have not met a savings goal of $5,000. The temporary relief will expire on 18 July 2028, and relates to certain licensing, disclosure, and design and distribution obligations. 

 APRA 

4. APRA proposes to remake sunsetting standard APS 910 Financial Claims Scheme: The Australian Prudential Regulation Authority (APRA) has commenced consultation on Prudential Standard APS 910 Financial Claims Scheme (APS 910) and is open for submissions until 23 August 2023. APS 910 is due to sunset on 1 October 2023 with APRA proposing to leave APS 910 unchanged but for minor amendments to ancillary provisions. APS 910 is instrumental in APRA’s crisis management framework by requiring authorised deposit-taking institutions to be pre-positioned for the Financial Claims Scheme. 

5. APRA seeks injunction in the Federal Court of Australia to restrain unauthorised banking business: The Australian Prudential Regulation Authority (APRA) has sought an injunction in the Federal Court of Australia to restrain Andrew Morton Garrett and purported businesses Dynamic Capital Bank, Banque de capital Dynamique, and Banca di Como from engaging in unauthorised banking business. APRA alleges Mr Garrett is marketing and operating businesses in Australia which are described as banks, despite not being authorised deposit-taking institutions licensed by APRA under the Banking Act 1959 (Cth). An injunction has been sought following an ignored demand by APRA to cease carrying on an unauthorised banking business and improperly referring to businesses as banks. 

6. APRA finalises requirements for remuneration disclosure: APRA has finalised the new requirements for authorised deposit-taking institutions, insurers, and superannuation entities for the public disclosure of remuneration information. Under the updates to Prudential Standard CPS511 Remuneration, APRA-regulated entities will be required to annually publish information on their remuneration frameworks, design, governance, and outcomes, with the information required varying depending on the size and nature of the entity. The new disclosure requirements will commence for all entities from their first full financial year following 1 January 2024. APRA’s response paper to the CPS 511 consultation can be accessed here. 

7. APRA directs Sureplan Friendly Society to fix data reporting: APRA has directed Sureplan Friendly Society Limited (Sureplan) to rectify the incorrect capital treatment of an asset. Following a report by an independent auditor conducting a Special Purpose Engagement (SPE), Sureplan, a mutual friendly society offering funeral expense products, was found to have incorrectly treated its capital. The SPE was ordered by APRA for the purpose of validating actuarial calculations and assessing the processes that Sureplan had for reporting data and came about following APRA’s concerns about the accuracy of data provided based on frequent data resubmissions. The SPE also recommended a range of enhancements to Sureplan’s reporting practices.

8. APRA to commence first annual review of data collections roadmap: On 31 July 2023, APRA announced that it will commence the first annual review of the data collections roadmap. This follows the five-year roadmap announced by APRA in March 2022, with the aim of transforming the regulator’s approach to collecting financial industry data. The review is set to consider the pace, sequencing, and priorities of the roadmap and ensure that APRA’s technological capacity is aligned with the goals of the roadmap. While the review is underway, data collection processes and timing for APRA-regulated entities will change. Further information can be found here. 

9. APRA issues reminder on reinsurance requirements  

On 3 August 2023, APRA issued a letter reminding general insurance companies of their ability to use APRA-approved alternative reinsurance arrangements, such as catastrophe bonds and other insurance linked securities, in calculating its insurance concentration risk charge (ICRC). While insurers have favoured traditional reinsurance solutions under the current model, APRA has encouraged insurance stakeholders to consider these alternative options in the face of higher reinsurance premiums and increased retentions caused by global external factors. 

Approval from APRA requires insurers to demonstrate why the use of alternative arrangements are practical and appropriate and the prudential regulator has invited insurers to initiate dialogue early should they wish to consider them. 

AFCA 

10. In its latest media release on 31 July 2023, and following a record 97,000 complaints taken to AFCA in 2022-23, AFCA has voiced its concerns over the meteoric rise in consumer complaints in the past 12 months, and in particular those disputes with financial firms, scam related complaints and delays in processing insurance claims. AFCA acknowledged the impact of interest rate rises on consumers will have contributed to the figures, however it has urged banks and financial institutions to continue to be proactive in assisting consumers in financial difficulty, adopting a collaborative approach to tackling scams and increasing claims monitoring and communicating with consumers in a timely manner. 

OAIC 

11. OAIC Consultation on draft revisions to Part 5 of the FOI Guidelines relating to exemptions: Submissions have now closed for comments on the draft revisions proposed to Part 5 of the FOI Guidelines (Exemptions), issued by the Australian Information Commissioner under the Freedom of Information Act 1982 (FOI Act).   

Part 5 of the FOI Guidelines sets out the exemptions listed in Division 2 of Part IV of the FOI Act and explains the criteria that must exist before access can be refused to a document sought pursuant to a FOI request.  

The proposed revisions to Part 5 of the FOI Guidelines are aimed at: 

• improving the readability of the FOI Guidelines;  
• bringing the Guidelines in line with recent AAT and Information Commissioner review decisions; and 
• updating the guidance in relation to the exemptions that apply to: 
  • documents affecting national security, defence or international relations; 
  • cabinet documents; 
  • documents subject to legal professional privilege; and 
  • documents containing material obtained in confidence. 

 The Consultation Draft can be downloaded here. 

12. OAIC assessment program across 2022-2023: Each financial year, the OAIC conducts an assessment program to assess agencies and organisations covered by the Privacy Act 1988 (Cth) and assesses whether Consumer Data Right participants are following the privacy safeguards of the relevant CDR rules. 

The key takeaways from the 2022-2023 assessment program include the need for entities to: 

• regularly review practices, procedures and other resources to ensure they are current, complete, and clearly outline measures used to manage privacy risks; 
• implement annual and mandatory refresher training for all staff (including contractors and short-term staff); 
• regularly review and test data breach response plans (including by conducting post-breach assessments of data breach responses); 
• review policies and practices around the retention of information; 
• actively implement recommendations made in reviews, audits, assessments (including OAIC assessments) etc; and  
• proactively maintain and monitor audit logs to identify and manage risks such as unauthorised access and disclosures of personal information. 

 13. Association of Information Access Commissioners of Australia holds first bi-annual meeting: The Association of Information Access Commissioners of Australia (AIAC) held its first bi-annual meeting for the year on 2 June 2023. 

The AIAC is a forum for Information Commissioners and Ombudsmen to discuss information access issues across Australia and New Zealand, share insights on open government trends and exchange ideas for implementing best practice in access to information. 

The AIAC observed: 

• the continued importance that the right to access government information has in: 
  • promoting integrity and accountability by government; and 
  • ensuring that citizens can participate in government decisions; and 
• that the rapid changes to the structures and systems of government meant that appropriate steps needed to be taken to ensure the rights of citizens impacted by those changes are protected. 

RBA 

14. Payments System Board appointments made: The Payments System Board of the Reserve Bank of Australia, which is responsible for controlling risk, promoting the efficiency of the payments system, and promotion of competition in the market for payments services, has had two new appointments. The Government has appointed Dr Michelle Deaker and Professor Ross Buckley, and reappointed Ms Gina Cass-Gottlieb, the current head of the ACCC, as part-time members to the Payments System Board. Each appointment is a five-year term. 

ACCC 

15. The Federal Court of Australia has ordered record penalties of $438m for acting unconscionably and misleading students: On 28 July 2023, in proceedings brought by the ACCC and the Commonwealth, the Federal Court of Australia (Federal Court) imposed record penalties of $438m against Phoenix Institute of Australia Pty Ltd (Phoenix) and its marketing division Community Training Initiatives Pty Ltd (CTI). The Federal Court previously held that Phoenix and CTI acted unconscionably and misled students into thinking that they would receive free laptops and were enrolling in free vocational courses, despite this not being the case and without proper assessment of computer skills, numeracy, literacy and language of its disadvantaged and vulnerable students. The Federal Court ordered $400 million in penalties against Phoenix, $37 million for CTI for its role in systemic unconscionable conduct, and $1 million for Phoenix for specific contraventions concerning four individual students which were deemed predatory and exploitative of vulnerability and disadvantage. Phoenix has also been ordered to repay all government funding despite Phoenix and CTI being in liquidation, with the Commonwealth cancelling the debts of eligible students under the VET FEE-HELP Student Redress measures. 

16. Australian banks permitted to collaborate on development of industry standards to combat scams: The ACCC has announced that the Australian Banking Association and member banks will be granted conditional ACCC interim authorisation permitting them to participate in discussions to develop industry standards to prevent, detect, and disrupt scams that affect individual and small business customers. The authorisation includes strict measures to manage the risk of participants coordinating on matters beyond customer redress and the prevention of scams. The ABA has noted that a strong bank industry standard could form the basis of the legislated cross-industry code that has previously been announced by the Federal Government. 

ATO 

17. ATO Corporate Plan 2023-2024: The ATO has published its 2023-24 Corporate Plan, outlining key focus areas and priorities for the next financial year. The plan is largely concerned with eight key goals for modernising ATO systems and processes to better address the evolving technological backdrop of the modern day and tightening the belt around both established and emerging areas of non-compliance. 

From a compliance enforcement perspective, the ATO is prioritising swifter and more decisive recovery action against taxpayers who choose not to engage with or purposefully avoid paying outstanding tax debts, uplifting systems and taking firm action on areas of suspected tax fraud, tighter monitoring of superannuation guarantee compliance, and higher scrutiny of new priority-tax-risk areas for multinational enterprises of all sizes in an increasingly mobile global economy.  

AUSTRAC 

18. Regulators release warnings relating to scams: AUSTRAC has released a warning relating to scammers posing as AUSTRAC and the Australian Financial Intelligence Unit investigators. AUSTRAC’s warning advises that they will never state that they are putting a hold on or will freeze a bank account or request money. Separately, ASIC released an alert relating to a scam involving Payback-Recovery Co, which has provided consumers with fake documents asserting to be affiliated with ASIC and requesting upfront fees to assist the victims of online fraud or scams. 

Treasury  

19. Review of the regulatory framework for managed investment schemes now open: The Treasury review of the regulatory framework for managed investment schemes, as announced in the October 2022-23 Budget, has now opened for submissions. The review is set to examine whether the existing regulatory framework is fit-for-purpose, identify any gaps, and consider potential improvements to reduce financial risks for investors. The paper seeks feedback on various issues, including whether: 

• the wholesale client thresholds remain appropriate, 
• the governance and compliance frameworks promote the effective operation of schemes, 
• the regulation of schemes with real property is appropriate, and 
• the rights of investors are adequately protected. 

The findings are expected to be provided to the Government in early 2024. Submissions can be made here until 29 September 2023. 

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