Gadens Regulatory Recap – 25 August 2023

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

ASIC

1. ASIC extends transitional relief for 12 months for foreign financial services providers: ASIC is, again, extending transitional relief for foreign financial services providers (FFSPs) for a further year until 31 March 2025 in accordance with the ASIC Corporations (Amendment) Instrument 2023/588 (ASIC Instrument 2023/588). After the end of the 12-month extension FFSPs will be required to hold an Australian financial services licence (AFSL) in order to provide financial services to wholesale clients in Australia. ASIC Instrument 2023/588 also delays the ASIC Corporations (Foreign Financial Services Providers – Funds Management Financial Services) Instrument 2020/199 from commencing until 1 April 2025, which is set to provide ASIC licensing relief to some FFSPs who provide financial services through funds management to particular categories of Australian professional investors. ASIC will consider throughout the extended transitional period new applications for individual temporary licensing relief, or new foreign or standard AFSL applications, from entities which are unable to rely on the transitional relief. Treasury is also consulting on additional new FFSP exemptions – see item 16 below.
2. ASIC releases consultation on proposals to extend short term credit and continuing credit contracts and product intervention orders: On 10 August 2023, ASIC released Consultation Paper 371 Product intervention orders: Short term credit facilities and continuing credit contracts (CP 371) and invites feedback to extend both product intervention orders by 5pm 31 August 2023. In the circumstance the current product intervention orders which came into effect on 15 July 2022 are not extended, these will expire on 15 January 2024.
3. ASIC proposes to extend design and distribution obligations instrument: ASIC is inviting feedback from industry in relation to a proposal to extend the operation of the ASIC Corporations (Design and Distribution Obligations Interim Measures) 2021/784 instrument for a further five years. The design and distribution obligations (DDOs) require organisations to design financial products with the needs of consumers in mind and ensure that products are distributed appropriately. The DDOs are a strategic enforcement priority for ASIC, with the regulator having issued a significant number of interim stop orders in relation to Target Market Determinations that do not adequately comply with the obligations since the introduction of the DDOs.Submissions are open until 25 August 2023.

4. ASIC review finds insurers can and should improve claims handling: ASIC has released Report 768 Navigating the storm: ASIC’s review of home insurance claims following a review of home insurance claims and general insurers’ obligations to manage claims efficiently, honestly and fairly. As part of the review, ASIC assessed more than 218,000 claims lodged between January and March 2022 across six insurers covering 63% of the Australian home insurance market.

ASIC identified the following areas for improvement:

• better communication with consumers about decisions, delays and complications;
• better project management and oversight of third parties;
• better recognition and management of expressions of dissatisfaction and complaints;
• better identification and treatment of vulnerable consumers; and
• better resourcing of claims handling and dispute resolution functions.ASIC has commenced several investigations in relation to insurance claims handling practices.

5. Enforcement: In the past fortnight, ASIC has continued to deliver on its 2023 enforcement priorities. A number of directors have been disqualified for engaging in illegal phoenix activity and the failure of three companies. A Melbourne-based cryptocurrency lender, Helio Lending Pty Ltd, was sentenced to a non-conviction bond for falsely claiming to have an Australian Credit Licence, entering into a recognisance of $15,000 for a period of 12-months on the condition that they are of good behaviour. ASIC has also banned a financial adviser and cancelled the AFSL of the director’s company on the basis of concerns regarding the conduct of the director and actions of the business. ASIC has also commenced proceedings in the Federal Court against Bakken Holdings Pty Ltd, an operator of a debt management business relating to concerns of substantial consumer harm, alleging that customers paid $3.6 million in fees from April 2020 to June 2022, but only $1.1 million was paid to creditors. In 64% of cases, customers did not have any payments made to their creditors. ASIC has commenced civil penalty proceedings against Active Super regarding greenwashing allegations, alleging misleading conduct and misrepresentations to the market relating to claims it was an ethical and responsible superannuation fund. ASIC has also commenced urgent proceedings against, and obtained orders freezing assets of, David Valvo and related company, Your Financial Freedom Pty Ltd, regarding fees charged to client superannuation funds. The Full Federal Court has dismissed ASIC’s appeal against CBA and Colonial First State Investments Limited for alleged breaches of conflicted remuneration laws, somewhat providing clarification as to the conflicted remuneration provisions.

6. ASIC Deputy Chair makes address regarding ASIC enforcement: ASIC Deputy Chair Sarah Court made the opening address at the General Counsel Summit, highlighting ASIC’s strong focus on enforcement priorities in 2023. Ms Court noted that the announcement of ASIC’s enforcement priorities was in part in response to industry calls for transparency, to hold ASIC accountable, and to have a compliance effect. ASIC’s 2023 enforcement priorities include greenwashing, protecting financially vulnerable consumers, and design and distribution obligations. Ms Court stated that ASIC’s enforcement approach is proactive and strategic, rather than reactive, and that ASIC does not investigate all potential breaches of laws within its administrative powers. ASIC is also not conservative in the selection of enforcement action, meaning that ASIC will investigate and enforce matters where legal outcomes are not guaranteed in order to test the scope of laws and ‘fully explore [a law’s] reach.’Ms Court additionally provided an update on ASIC’s progress in relation to the enforcement priorities, noting:

• More than 20 infringement notices have been issued and two civil penalty proceedings have been commenced in the Federal Court in relation to greenwashing;
• A large number of interim stop orders have been issued under the design and distribution obligations, and two civil penalty proceedings have been commenced;
• Insurers are remediating more than 5.6 million customers in the order of $815 million for practices relation to pricing promises in insurers, and two insurers have been penalised by the Federal Court, with a further insurer currently facing civil penalty proceedings;
• Civil penalty proceedings have been commenced against providers in relation to high-cost credit and predatory lending practices; and
• Civil penalty proceedings have been commenced in relation to governance failures and directors’ duties, with the Federal Court recently imposing penalties on individual directors in another matter.

APRA

7. APRA releases final technical determination and updated information paper on combining MySuper product performance histories: Following consultation in April 2023, APRA has released final technical determination and updated information paper on combining MySuper product performance history. The final determination removes the need for APRA to make individual determinations for each MySuper product for which performance histories are required to be combined. The Information Paper includes APRA’s detailed methodology, the response to APRA’s consultation, and a non-confidential submission made by ASFA.
8. APRA releases update on policy priorities schedule for ADIs: APRA has written to authorised deposit-taking institutions (ADIs) to provide an update on the banking industry policy priorities for the remainder of 2023. Specifically, the key ADI policy priorities for 2023 are:

• Liquidity: APRA will consult on changes to Prudential Standard APS210 Liquidity (APS210) and focus on the treatment of liquid assets for ADIs on the minimum liquidity holding approach. A comprehensive review of APS210 is expected in 2024;
• Interest rate risk: APRA is finalising Prudential Standard APS117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS117), with a revised standard to be released in late 2023. The scope of the review will be expanded to consider the appropriate treatment of smaller ADIs;
• Capital framework updates: APRA will consult on minor updates to the bank capital framework in relation to issues that have been raised by industry through 2023; and
• Additional Tier 1 (AT1): APRA will release a Discussion Paper to explore options for improving the effectiveness of AT1 capital in Australia, with potential consultation in 2024.

9. APRA removes liquidity add-on for Bendigo and Adelaide Bank: APRA has removed a liquidity add-on requirement imposed on Bendigo and Adelaide Bank (Bendigo) for breaches of APS210 relating to liquidity. In 2020, APRA took action against Bendigo for multiple breaches of APS210 that indicated weaknesses in Bendigo’s risk management practices and its ability to accurately calculate and report liquidity ratios. APRA’s add-on requirement increased the amount of liquid assets that the bank was required to hold. Bendigo has undertaken a review into its adherence with APRA’s liquidity requirements and instituted a remediation plan to address the purported weaknesses.
10. Federal Court decision regarding unauthorised banking business: Following an application lodged in the Federal Court by APRA in July, Justice Lee has made orders permanently restricting Mr Andrew Morton Garrett and his businesses, Dynamic Capital Bank, Banque de capital Dynamique, and Banca di Como, from engaging in unauthorised banking business, using the word ‘bank’ to refer to his business, or representing that his business will carry on banking business. Such practices are a breach of the Banking Act 1959 (Cth), which states that only ADIs licensed by APRA are legally permitted to carry out banking business, describe services as banking, or refer to themselves as ‘banks’. If Mr Garrett fails to comply with the orders, he will be in contempt of court.
11. APRA releases final class exemption to own or control RSE licensee: APRA has released a class exemption instrument relieving certain directors of RSE licensees from requirements under sections 29HA and 29JCB of the Superannuation Industry (Supervision) Act 1993 to obtain APRA approval to own or hold a controlling stake of more than 15% in an RSE licensee.The class exemption is limited in scope, and only applies to directors and former directors that:

• are deemed to own or hold a controlling stake of 15% only due to aggregation with certain associates;
• are not entitled to any financial benefit arising from the shareholding directly; and
• are required to forfeit or transfer the shareholding as soon as practicable after ceasing to be a director of the RSE licensee.

12. APRA extends Avenue Bank’s licence to operate as restricted ADI: APRA has granted Avenue Bank Limited an extension of their licence to operate as a restricted authorised deposit-taking institution (restricted ADI) under the provisions of the Banking Act 1959 (Cth). APRA reiterated that this decision is not a precedent that has been set for other restricted ADIs to follow, and instead based on the unique circumstances of their application which meant that the extension was warranted.

AFCA

13. AFCA publishes consultation paper seeking feedback on draft Responsible Lending Approach: AFCA has published a consultation paper seeking feedback from stakeholders about its new Responsible Lending Approach. The paper documents how the body investigates and resolves responsible lending complaints from consumers regarding firms that sell credit products regulated under the National Consumer Credit Protection Act 2009 (Cth).AFCA has outlined the following criteria that it will follow in ensuring transparency, consistency and fairness in dealing with consumer complaints:

• assessment of the financial firm’s compliance with its responsible lending obligations;
• application of legal principles, industry codes and regulatory guidance;
• determining a fair outcome where a financial firm breaches its responsible lending obligations;
• calculation of loss and assessment of benefits in determining compensation; and
• consideration of all the circumstances to determine an outcome that is fair to all parties.Feedback and submissions are open until Monday 11 September 2023.

OAIC

14. Data breaches primary privacy concern for consumers: The OAIC’s Australian Community Attitudes to Privacy Survey 2023 has shone a spotlight on the Australian community’s attitudes, awareness, and concerns regarding collection, storage, and usage of data. The survey suggests that while Australians are increasingly aware of the need to protect information in the wake of several high-profile data breaches in recent years, a majority feel that they do not understand how their data is being used by organisations, or how to go about protecting it. Nearly half of all Australians surveyed had personal information involved in a data breach within the last 12 months, and three quarters of affected individuals had experienced harm because of a data breach. The survey also suggests that the overwhelming majority (96%) of Australians want AI tools that can be used to make decisions about them using personal data to be subject to at least some level of regulation and are largely uncomfortable with either Government or business using AI tools for these purposes (80% and 85% of respondents). The results of the survey will guide the OAIC’s approach to reviewing the Australian privacy law and allocating regulatory and compliance resources to target areas of high community concern.

15. ADO and Telstra Corporation Limited (Privacy) [2023] AlCmr 47: Telstra has been fined by the Deputy Privacy Commissioner for a failure to ensure that a customer’s information was up to date. In this case, Telstra inappropriately provided a third party with ‘full authority’ over the complainant’s account, allowing them to purchase a new device and enter into a contract, as well as change the contact details on the account, without the knowledge of the complainant. Telstra completed credit checks, and ultimately issued a series of default notices to the complainant, though such notices were not received due to the changed contact details. The complainant had not been made aware of the contract on their account, changed contact details, or the overdue debt until such time as they were attempting to obtain finance to purchase a property.The Deputy Privacy Commissioner determined that Telstra engaged in conduct constituting an interference with the privacy of the complainant and failed to comply with APP 10.2 and sections 21C and 21D of the Privacy Act.

Treasury

16. Consultation open for licensing exemptions for foreign financial service providers: Treasury has opened consultation on exposure draft legislation to provide Australian financial service licensing exemptions to foreign financial service providers (FFSPs). The exposure draft legislation would introduce:

• a comparable regulator exemption;
• a professional investor exemption;
• a market maker exemption; and
• an exemption from the fit-and-proper person assessment to fast-track licensing for FFSPs authorised to provide financial services in a comparable regulatory regime.Submissions close on 8 September 2023.

17. Review of the Franchising Code of Conduct Commences: On 15 August 2023, Treasury announced a review of the Franchising Code of Conduct contained in Schedule 1 of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014. The review will be conducted by Dr Michael Schaper in accordance with the Terms of Reference, which consider whether the Code is generally fit for purpose, possible extension of protections for franchisees of new car dealerships to apply to truck, motorcycle, and farm machinery dealerships, and effectiveness and impacts of recent reforms. The Consultation Paper can be accessed here.Submissions close on 29 September 2023.

RBA

18. Payments System Board meets for August: Following its August 2023 meeting, the RBA Payments System Board has indicated that it intends to:

• continue consultation with industry regarding a possible framework to increase oversight of prominent payment systems;
• pause proposed action that would require card schemes and issuers to allow merchants to choose their preferred debit card network on dual-network debit cards through ‘least-cost routing’;
• continue consultation with industry to explore standardisation for payment card tokenisation, with the aim to publish high-level industry expectations by the end of 2023; and
• continue exploring possible use cases that could be supported by the issuance of an Australian central bank digital currency.

ACCC

19. ACCC highlights expectations for corporations making green claims: On 8 August 2023, the Deputy Chair of the ACCC, Ms Catriona Lowe, delivered a keynote address at the General Counsel Summit, focusing on the regulator’s expectations for corporations in making green claims. Ms Lowe noted that a current enforcement and compliance priority is environmental claims and sustainability. Ms Lowe stated that businesses are increasingly responding to consumer demand for sustainability, and that greenwashing is a growing concern, given that consumers are often willing to pay more for a product that has perceived environmental or sustainability benefits.Where greenwashing occurs, businesses taking genuine steps to adopt sustainable practices are at a competitive disadvantage, ultimately disincentivising genuine adoption of sustainable products. Ms Lowe stated that, in late 2022, the ACCC conducted a review of environmental and sustainability claims made by 247 businesses across a range of sectors and found that 57% of businesses made potentially false or misleading claims about environmental or sustainability. The ACCC has a number of greenwashing investigations in process and has released draft guidance for businesses to consider compliance with the law, as well as the ACCC’s position as to best practice.The general principles identified by the ACCC are:

• making accurate and truthful claims;
• businesses should have evidence to back up their claims;
• businesses must not hide important information;
• businesses must explain any conditions or qualifications on claims made;
• businesses should avoid broad and unqualified claims;
• use of clear and easy to understand language;
• visual elements should not give the wrong impression; and
• businesses should be direct and open about their sustainability transition.

 AUSTRAC

20. AUSTRAC commences consultation on amendments to AML/CTF Rules: AUSTRAC has opened for submissions the opportunity for feedback on the draft Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) and Explanatory Statement amending Chapter 10 of the AML/CTF Rules. The draft AML/CTF Rules repeal Part 10.4 as of 29 September 2023, with reporting entities that provide online gambling services after that date, being required to undertake the required customer identification procedure before providing designated services in accordance with Measure 3 of the National consumer Protection Framework for Online Wagering. Submissions are open until 4 September 2023.

Other

21. The Actuaries Institute reports on the impact of extreme weather on insurance premiums: The Actuaries Institute has provided the Insurance Council of Australia with two reports regarding the impact of extreme weather on insurance premiums, being the ‘Home Insurance Affordability Update‘ and ‘Funding for Flood Costs: Affordability, Availability and Public Policy Options‘. These reports have been endorsed by the Insurance Council of Australia as they assist in further exploring the extreme weather events that occurred in 2022 and the costs associated with them (approximately AU$7 billion in insured losses). As a result of the February and March floods in Queensland and New South Wales last year, these weather events were the costliest on record for Australian insurers. The reports demonstrate the need for ongoing government investment and policy intervention to assist with future insurance affordability and they also provide recommendations for how this should be undertaken.

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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
Patrick Simon, Associate
Jethro Schoeman, Solicitor (Lavan)