Gadens Regulatory Recap – 5 September 2023

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

ASIC

1. ASIC welcomes appointment of three Commissioners: The Australian Securities Investments Commision (ASIC) has announced the appointment of three Commissioners to further strengthen their team. The newly appointed Commissioners are:

• Ms Katherine O’Rourke, who is currently a First Assistant Secretary at Treasury (appointment effective 11 September 2023);
• Mr Alan Kirkland, the current CEO of CHOICE (appointment effective 20 November 2023); and
• Ms Simone Constant, who is currently the Chief Risk Officer of Institutional Bank and Markets at the Commonwealth Bank of Australia (appointment effective 20 November 2023).

2. ASIC – RBA issue joint letter of expectations to ASX: On 30 August 2023, ASIC and the Reserve Bank of Australia (RBA) issued a joint letter outlining their expectations of the Australian Securities Exchange (ASX) to actively consult and collaborate with the ASX Cash Equities Clearing and Settlement Advisory Group, a body designed to oversee the efficiency of the ASX’s clearing and settlement facilities. To address concerns and restore market confidence in the CHESS replacement program, the joint regulators have called for transparency and engagement in good faith between parties to ensure a clearing and settlement system that is fit for purpose.

3. As ‘cost of living’ pressures persist, ASIC calls on lenders to support customers in financial hardship: On 30 August 2023, ASIC sent an open letter to the Chief Executive Officers of all lenders outlining its stance on supporting consumers experiencing financial hardship. The letter has been distributed in light of the current state of Australia’s economy with increasing interest rates, which has resulted in further costs-of-living pressures felt by the community.

ASIC’s expectations of lenders include:

• regular communication with customers proactively, throughout and at the end of the assistance period;
• development of sustainable solutions where possible through genuine consideration of customers’ circumstances; and
• provision of when and how customers can obtain assistance.

ASIC’s focus is on consumers who will suffer hardship over the next 12 months. ASIC has also reiterated its expectations for lenders to meet their obligations under section 72 of the National Credit Code which, amongst other things, allows a debtor to request a change to the terms of their credit contract on the grounds of financial hardship. See letter here.

4. ASIC releases 2023-2024 Corporate Plan: On 28 August 2023, ASIC released its 2023-2024 Corporate Plan, emphasising its strong enforcement outcomes through the 2022-2023 financial year and priority to support enforcement and regulatory issues. ASIC will continue to protect vulnerable Australian small businesses and consumers from predatory lending practices, scams and digitally enabled misconduct. The report sets out ASIC’s strategic priorities as being:

• product design and distribution;
• sustainable finance;
• retirement outcomes; and
• technology risks.

ASIC’s core strategic projects for 2023/2024 are:

• scams;
• sustainable finance practices;
• crypto-assets;
• design and distribution obligations;
• cyber and operational resilience; and
• digital technology and data.

5. Enforcement: ASIC has continued to be active in the enforcement space over the past fortnight. ASIC issued an interim stop order halting the offer of a registered managed fund due to deficiencies in the target market determination. ASIC has suspended the Australian Financial Services Licence (AFSL) of Australasian Capital Pty Ltd for one year due to failure to meet financial reporting obligations, and because it had ceased to carry on a financial services business, and of Navigate Global Payments Pty Ltd after it was placed into voluntary administration. A number of directors have been disqualified, including a Victorian director for three and a half years for their involvement in the failure of three companies, and a Queensland director for four years for their involvement in three failed companies.

Separately, ASIC has commenced civil penalty proceedings against five former directors of the Youpla Group for alleged breaches of their duties. Civil penalty proceedings have also been commenced in the Federal Court alleging that IAG-subsidiaries, Insurance Australia Limited and Insurance Manufacturers of Australia Pty Limited misled customers about various loyalty discounts available for home insurance, with ASIC alleging that the discounts were misleading to customers and used as a tool to encourage customers to renew home insurance policies. A NSW director has been charged with five counts of falsifying company books relating to 24-7 Ice Pty Ltd while a Melbourne man was charged with multiple insider trading offences linked to share market purchases in Kidman Resources in 2019.

The Federal Court has delivered its judgment relating to former Quintis Limited director, finding that he did not breach his duties as a director regarding disclosure of the termination of key contracts. Finally, ASIC has commenced proceedings in the Federal Court against Westpac Banking Corporation for failing to respond to customers’ hardship notices between 2015 and 2022 within the legislated National Credit Code 21 day timeframe. In some cases, the 229 impacted, vulnerable Westpac customers were subject to debt collection activities despite having serious medical conditions, an inability to work or carer responsibilities. ASIC is seeking pecuniary penalties, adverse publicity and declarations against Westpac from the Federal Court, with the first case management hearing to be scheduled.

APRA

6. APRA responds to emerging risks in 2023-24 Corporate Plan: On 29 August 2023, the Australian Prudential Regulation Authority (APRA) released its 2023-2024 Corporate Plan, setting out its priorities for the next four years relating to risks impacting the global financial system.

APRA’s key priorities are:

• addressing system-wide risks by improving cross-industry stress-testing, and ensuring macroprudential policy is appropriate for given operating environments;
• increased focus on operational resilience, including crisis management, cyber resilience, and operational risk management to ensure critical financial services are maintained;
• climate-related financial risks, which includes embedding climate risk in APRA’s supervision approach; and
• improving the transparency of superannuation to provide members with greater insights about their investment performance, and overall increasing APRA’s focus on retirement architecture.

The core focus areas of APRA over the course of the next year are:

• policy development, including the development of comprehensive framework of prudential standards and practice guides;
• risk-based supervision, including increased supervision where needed to address identified issues;
• enforcement, with the adoption of a “constructively tough” and transparent approach to the use of formal enforcement tools; and
• resolution, with the implementation of an effective response to likely failure of regulated entity to achieve an orderly exit and minimise disruption and losses to members.

7. APRA early engagement with industry in preparation for CPS 230: APRA member Therese McCarthy has signalled that APRA intends to engage with members of the banking, insurance, and superannuation industries throughout 2024 to examine preparedness for compliance with recently released Prudential Standard CPS 230, ahead of the 1 July 2025 compliance deadline. Entities that will be subject to compliance obligations under CPS 230 have been encouraged to get an early start on identifying critical operations and material service providers, developing new organisational mindsets, and putting appropriate governance arrangements in place in anticipation of APRA applying ‘a little heat of its own’.

8. APRA releases general insurance, quarterly private health insurance, life insurance and superannuation statistics for June 2023: The Australian Prudential Regulation Authority (APRA) has released its quarterly statistics for the June 2023 quarter, including the:

• Quarterly General Insurance Performance Statistics publication (GI Statistics);
• Quarterly Superannuation Performance Statistics Highlights June (Superannuation Statistics);
• Quarterly Life Insurance Performance Statistics Highlights June (LI Statistics); and
• Quarterly Private Health Insurance Statistics Highlights June (PHI Statistics).

The GI Statistics found that in the year ending June 2023, due to the sharp recovery of investment returns, the industry reported $4.6 billion net profit after tax, a return of 14 percent on net assets, and relatively strong underwriting results arising from insurers raising premiums due to higher claims costs.

The Superannuation Statistics determined in the year ending June 2023 that growth in superannuation was a result of strong investment market returns, higher wage inflation, strong contribution inflows and higher employer growth, with contributions increasing by 12.9 percent to $165.2 billion. Member contributions increased to $42.7 billion or by 13.1 percent and employer contributions increased to $122.5 billion or by 12.9 percent.

The LI Statistics for the year ending June 2023 reported a return on net assets of 4.6 percent, a net profit after tax of $1.2 billion, and a net profit of $441 million for risk products. The PHI Statistics identified key findings including that in the year ending 30 June 2023, premium revenue increased predominantly due to membership growth by 3.3 per cent, the PHI industry reported a net profit of $2.2 billion after tax and claims costs increased due to higher service utilisation levels by 2.4 per cent.

9. APRA suspends publication of the next quarterly insurance statistics: On 24 August 2023, APRA announced to all insurers that its release of September 2023 quarterly insurance statistical publications (which would usually be released in November) will be delayed. The publication’s delay will ensure that these statistics accurately reflect the capital and reporting framework changes that came into effect from 1 July 2023. APRA will hold a formal consultation period with stakeholders in late 2023 to discuss and determine the content, structure and release timing of these publications, with the publications resuming for the December 2023 editions.

OAIC

10. Global expectations of social media platforms and other sites to safeguard against unlawful data scraping: The OAIC and 11 international counterparts have released a joint statement to address the issue of data scraping on social media and other platforms. This follows the recent decision of the AAT relating to Clearview AI Inc’s breach of the Australian Privacy Principles by use of data scraping. The joint statement highlights the risks of data scraping and steps that social media companies and individuals can respectively take to reduce privacy risks and protect personal information. Data scraping is used by companies to extract personal information – typically by report mining, screen scraping or web scraping. Relevantly, the statement emphasised that personal information remains subject to data protection and privacy laws in most jurisdictions even in circumstances where it may otherwise be publicly accessible, and that social media companies have obligations under privacy laws to protect personal information from unlawful data scraping. Finally, it was noted that data scraping incidents that harvest personal information may constitute reportable data breaches in many jurisdictions.

Treasury

11. Review of the Modernising Business Registers Program – Final report: Following an independent review in February 2023, Treasury has issued its final report into the Review of the Modernising Business Registers (MBR) Program, which can be found here.

Despite some successful inroads such as the creation of an Australian Business Registry and mandatory director identification to prevent fraudulent identity, the Report has highlighted significant concerns most notably budget over expenditure, underestimating the complexity of the Program and inadequate strategic resource planning. Among the five options outlined to government, the Report ultimately suggests that the economic benefits do not justify the further cost required to complete the Program and that it should be stopped immediately.

12. Expansion of CDR rules to non-bank lenders: Treasury has released exposure draft amendments to the Consumer Data Right (CDR) Rules for the expansion to the non-bank lenders sector. This follows a consultation paper released in December 2022 relating to the application of the CDR to non-bank lenders. This is said to increase the availability of data and provide consumers with further information to support the management of their finances. The exposure draft rules include a new obligation for energy retailers to facilitate access to specific information held by the Australian Energy Regulator. A Stakeholder forum relating to the exposure draft rules will be held on 13 September 2023, and any responses can be submitted to the consultation until 6 October 2023.

RBA

13. Reserve Bank and Digital Finance CRC Complete CBDC Research Project: On 23 August 2023, the RBA and the Digital Finance Cooperative Research Centre (DFCRC) released a report on joint project findings on possible use cases for an Australian central bank digital currency (CBDC). The pilot CBDC was used to demonstrate payment and settlement services in Australian businesses and households.

The key findings included:

• understanding the benefits of close engagement between policymakers and industry in considering innovations in digital money;
• obtaining a deeper understanding of programmable payments and tokenised asset markets in the Australian economy; and
• identifying the importance of collaboration between industry experts and central banks.

ACCC

14. ACCC welcomes consultation on possible unfair trading practices regulatory reforms: Treasury has recently opened consultation seeking to identify and address potential gaps in the Australian Consumer Law relating to unfair trading practices that are not prohibited by existing consumer law. The ACCC has been quick to weigh in, reiterating previous calls for stronger unfair trading practices prohibitions, particularly for small businesses that often have limited bargaining power in dealings with large businesses.

Interested parties have until 29 November 2023 to lodge submissions with Treasury.

15. Record $57.5 million penalty for BlueScope’s attempted price fixing: BlueScope Steel was ordered by the Federal Court to pay a $57.5 million penalty for attempts at price fixing, constituting the highest penalty issued in Australia for cartel conduct. A penalty of $575,000 was also imposed on the former general manager of BlueScope, Jason Ellis, with stipulations that this cannot be recovered from an insurance agency. This penalty follows the December 2022 decision where the Court found that BlueScope and Mr Ellis attempted to induce eight Australian steel distributors, and an overseas manufacturer, to enter agreements to fix and/or raise pricing for flat steel products. Justice O’Bryan found the conduct of BlueScope was deliberate and systemic, and a substantial penalty was needed, given the seriousness of the conduct carried out at a senior level of the company, and the potential for significant financial gain.

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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)