Gadens Regulatory Recap – 19 March 2024

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

ASIC 

1. ASIC calls on insurers to improve claims handling practices: On 6 March 2024, ASIC issued a letter reminding general insurers of their obligations regarding insurance claims and severe weather events. Relevantly, section 912A of the Corporations Act 2001 (Cth) requires general insurers to act efficiently, honestly and fairly when providing claims handling services including resolving claims in a timely and transparent manner.  

In its letter, ASIC highlighted key requirements for general insurers as:  

• claims handling with sufficient and adequately trained staff particularly in disputes resolution functions;  
• identification of vulnerable customers and tailored claims handling services accordingly;  
• transparent, clear and timely communication with customers regarding their claims;  
• effective project management of third parties, including tradespeople and assessors; 
• identification of complaints and dissatisfaction at earliest opportunity. 

Misconduct in insurance claims handling remains a key enforcement priority for ASIC in 2024. 

2. ASIC commences consultation on registered liquidator registrations: On 7 March 2024, ASIC released consultation paper CP376, which:   

• sets out details of a raft of proposed changes that have been made to Regulatory Guide 258 Registered liquidators: Registration, disciplinary actions and insurance requirements (RG258) in light of legislative amendments passed in early 2021; and 
• seeks stakeholder feedback on a number of further proposed amendments to ASIC’s guidance in RG258, particularly in relation to application requirements, personal capacity and resource requirements, ongoing obligations, and disciplinary actions in relation to registered liquidators. 

Submissions on the proposed changes are due by 2 May 2024. 

3. ASIC update on internal dispute resolution data collection for new reporting requirements: ASIC has provided an update on its internal dispute resolution (IDR) reporting framework and requirements. ASIC reported a high level of compliance with the obligations, with 87% of required firms submitting IDR data.  

IDR reporting requirements now apply to all financial firms, with reporting obligations to be met twice a year. 

4. ASIC enforcement activities: ASIC has been particularly active in the last fortnight and has delivered a broad range of enforcement activities. 

ASIC has imposed conditions on the registrations of 13 SMSF auditors and accepted voluntary cancellations from a further two following various concerns as to independence. All 15 SMSF auditors were referred to ASIC by the ATO following a review of audit firms undertaking accounting and audit work for SMSF clients. The conditions require an independence review of all SMSF audit clients, notification of the conditions, and emphasise the restriction on in-house audits.  

ASIC cancelled the AFSL of Suetonius Wealth Management Pty Limited (Suetonius) following a continued failure to lodge financial statements and audit reports for the financial years ending 30 June 2021 onwards. Separately, a director of multiple organisations has been disqualified from managing corporations for four years following his involvement in three failed companies, with ASIC determining that the director failed to meet his obligations and acted improperly. 

ASX Limited has paid a penalty of $1,050,000 following an ASIC investigation into compliance with the Market Integrity Rules, marking the first time that ASIC has issued an infringement notice to a market operator. ASIC indicated that it had reasonable grounds to believe that the ASX breached the rule that requires pre-trade transparency on 8,417 occasions between 4 April 2019 and 22 December 2022. ASIC noted the ASX took steps to remedy the issue and notify ASIC once the issue was identified. 

A liquidator has been convicted and sentenced to 24 months imprisonment for using his position as a liquidator to withdraw company funds, following an investigation by ASIC. ASIC’s investigation determined that Mr Ronald Cardwell, who was not a registered liquidator, used his position dishonestly to withdraw $150,367.12 in 12 separate transactions for his own financial benefit. Mr Cardwell pled guilty to one count of contravening s184(2) of the Corporations Act and one count of contravening s63(1) of the ASIC Act, with the guilty plea considered in sentencing.  

On 29 February 2024, the Federal Court made a finding that RM Capital Pty Ltd (RM Capital) failed to take reasonable steps to ensure that its authorised representative, SMSF Club Pty Ltd (SMSF Club) did not accept conflicted remuneration. ASIC alleged that SMSF Club advised clients to set up SMSFs to buy property marketed by a real estate agent that had referral agreements in place with SMSF Club in contravention of s963 of the Corporations Act. Justice Jackson accepted that “even if there had been an adequate approvals process in place, it would have been insufficient by itself to have constituted reasonable steps,” and noted that RM Capital did not have an adequate formal approval process in place. 

On 14 March 2024, the Federal Court made a finding that Finder Wallet Pty Ltd (Finder Wallet) did not provide unlicensed financial services in its offering of a crypto-asset related product, Finder Earn. ASIC had alleged that Finder Earn was a debenture, given customers deposited money on the basis that the money would be repaid alongside a return for allowing Finder Wallet to use their funds as investment capital. This position was rejected by Justice Markovic, who found the product was not a debenture as “there were no moneys deposited or lent [and] there was equally no undertaking by Finder Wallet to repay any moneys as a debt. Rather, there was a contractual promise.”  

APRA   

5. ASIC and APRA jointly issue final FAR rules and further guidance: ASIC and the Australian Prudential Regulation Authority (APRA) have jointly released final rules and guidance to support the implementation of the Financial Accountability Regime (FAR). The guidance provides details to the banking industry as it relates to accountable persons under the Banking Executive Accountability Regime (BEAR) and the transition timetable to FAR. Descriptions of ADI key functions are included, with reporting form instructions provided to assist banking entities in providing the required information to APRA and ASIC.  

The regulators also released an information package and guidance material to assist entities in the banking, insurance and superannuation industries to prepare for FAR, including a consultation that is specifically relevant to insurance and superannuation entities. Submissions on the consultation paper are due by 19 April 2024. 

FAR is applicable to the banking industry from 15 March 2024, while the insurance and superannuation industries will be subject to FAR from 15 March 2025.  

6. APRA removes NAB’s operational risk capital add-on: On 13 March 2024, APRA confirmed its removal of the $500 million capital add-on previously imposed on NAB, effective immediately.  

Initially imposed on July 2019, the add-on was a response to non-financial risk management and risk culture weaknesses identified in a self-assessment undertaken by NAB. APRA is now satisfied NAB has completed its remediation program and adequately addressed the identified issues.  

7. APRA releases information paper on credit risk capital requirements for housing loans: On 15 March 2024, APRA released an information paper setting out the capital adequacy rules for housing lending. Capital adequacy is said to be a particular concern of the regulator given the high concentration of housing loans in Australia. The paper specifically considers:

• how does APRA ensure that capital requirements for housing lending are sufficient to withstand losses through the cycle; and 
• how does APRA ensure that the differences between internal ratings-based and standardised capital requirements are appropriate, and limit impacts on competition in the Australian banking system? 

The paper concludes that the current capital framework is appropriate and provides adequate equity for Australian banks. 

ACCC  

8. ACCC releases 2024-25 compliance and enforcement priorities: On 7 March 2024, the ACCC released its compliance and enforcement priorities for 2024-2025.  

Key compliance and enforcement priorities include: 

• Sustainability, including greenwashing claims and other sustainability related claims that are misleading or deceptive; 
• Promotion of competition in essential services, with a focus that includes financial services; 
• The digital economy, which includes a focus on misleading or deceptive conduct, which includes disclosure of incentives received by advertisers; 
• Unfair contract terms, particularly given the introduction of penalties; 
• Scams, particularly through continued support of ScamWatch and the National Anti-Scam Centre; and 
• Anti-competitive conduct, particularly as it relates to the misuse of market power. 

In determining whether a matter ought to be pursued, the ACCC has indicated that it will prioritise matters that are within the current priority areas, as well as those that are of significant public interest or concern, involve a new or emerging market issue, or where action is required to clarify aspects of the law. 

9. National Anti-Scam Centre releases quarterly update: On 12 March 2024, the ACCC released the quarterly National Anti-Scam Centre update for the October to December 2023 quarter.  

The NASC, which was established in July 2023, aims to reduce scam activity in Australia by co-ordinating the activities of government, law enforcement, and the private sector. 

The update made the following key findings:  

• $82.1 million in losses were reported this quarter, which represents a reduction of 43% from the same quarter in 2022; 
• there was a 74% decrease in losses associated with cryptocurrency scams; 
• investment scams continued to cause the greatest financial losses to Australians, totalling $52.4 million; 
• phishing scams were the most reported scam type, constituting 40% of total reports made, though losses due to phishing scams decreased by 62% when compared to the same quarter in 2022; 
• text messages continued to be the most common scam contact method and saw a 6% increase in accounting for scam contacts compared to the previous quarter; and 
• there were decreases in scam contacts by email (23% decrease) and phone calls (29%). 

OAIC

10. Interview with Australian Privacy Commissioner: Incoming Privacy Commissioner at the OAIC, Ms Carly Kind, has provided an insight into her vision for the key focus areas of the OAIC in a recent interview.  

The Commissioner stated that the main challenges facing the OAIC include the recent leaps in generative artificial intelligence, as well as addressing more longstanding harmful practices in the privacy landscape that have been commonplace for some time. This will include shoring up existing regulations to ensure adequate consumer protection.  

ATO

11. ATO successful in SingTel case: The Federal Court has dismissed the taxpayer’s appeal against the primary judge’s decision in the recent decision Singapore Telecom Australia Investments Pty Ltd v Commissioner of Taxation [2024] FCAFC 29. The case considered whether SingTel claimed a transfer pricing benefit for deductions based on interest paid on loans between two of its subsidiaries regarding its acquisition of Optus in 2002. SingTel appealed the 2002 Federal Court ruling that stated the lending did not comply with the ‘arm’s length’ test, which requires companies within multinational groups to behave as if they were independent parties during transactions to ensure said transactions are not for the purposes of enabling tax avoidance. On appeal, the Court determined that the primary judge did not err in its judgment and dismissed the appeal with costs. 

AUSTRAC

12. AUSTRAC commences investigation into Bet 365: On 7 March 2024, AUSTRAC announced it was investigating Hillside (Australia New Media) Pty Limited (Bet365) over whether it has complied with its obligations under the AML/CTF Act. The investigation follows a protracted audit by external administrators appointed in November 2022 to evaluate Bet 365’s compliance with its overarching AML/CTF framework. 

Treasury 

13. Treasury commences consultation on standard definitions and standard cover for insurance: Treasury has commenced a consultation relating to the standardisation of natural disaster terms in insurance contracts.  

Standard definitions, which would involve a mandate that ensures insurers all use the same definition for a particular event, currently do not apply to natural hazards, with the exception of ‘flood’. The consultation seeks feedback on natural hazard terms that would be appropriate to be standardised across the industry. 

The consultation paper sets out potential natural hazard terms that may be standardised, as well as standard cover that may be applicable to insurance contracts. Submissions on the consultation period are due by 4 April 2024.  

14. Treasury commences consultation on the Annual Superannuation Performance Test and potential reforms: Treasury has announced that it is considering reforming the Annual Superannuation Performance test (the ASP Test) and has commenced a consultation. 

The ASP Test was initially introduced in 2021 to hold trustees to account for super investment performance and fees charged, however there are concerns that the ASP Test may also be affecting investment decisions to the detriment of members. The purpose of the consultation paper is to seek suggestions on how the ASP Test could be improved and reformed in a way that avoids unwanted outcomes.  

The consultation is open for submissions until 19 April 2024. 

15. Treasury commences consultation on Buy Now Pay Later regulatory reforms: Treasury has released the much anticipated draft legislation for the regulation of Buy Now Pay Later (BNPL) products and commenced a consultation on the draft legislation.  

The amendments aim to adopt a flexible, adaptable regulatory framework which preserves the benefits of consumer access to BNPL while ensuring there are proportionate protections against the risk of consumer harm. Key changes set out in the draft legislation include:

• BNPL products will be regulated as a form of credit defined as low cost credit contracts (LCCCs) under the new regulatory regime; 
• LCCC providers will be required to hold an ACL; 
• a modified responsible lending obligations framework will be available to LCCC providers on an opt-in basis; 
• LCCC providers will be required to develop and review written policies on assessing whether an LCCC will be unsuitable for a consumer; and 
• anti-avoidance protections will be established to prevent LCCC providers from structuring their business models to avoid regulation. 

Gadens has published a deep dive article on the shape of the new regulatory regime. Submissions to the consultation are open until 9 April 2024. 

16. Government to introduce financial sector regulatory initiatives grid: On 11 March 2024 Treasury announced that it will introduce a “financial sector regulatory initiatives grid” (FSR Initiatives Grid) to help financial services businesses engage with the Government and regulators (including ASIC, APRA, ACCC, RBA and ATO) more effectively and allow regulators to avoid duplication, build shared strategic priorities, and focus on how to best implement reforms. It will also allow entities to allocate their resources more efficiently when implementing regulation, thereby reducing compliance burden and costs. The FSR Initiatives Grid will be a rolling, 24‑month forward program of regulatory initiatives that will materially affect the financial sector, including banking, credit, insurance, superannuation, investment, payments, and capital market entities, updated twice a year. It will be modelled on a similar grid in the UK. No indication has yet been given of when the first “edition” will be published. 

AFCA

17. Material changes to AFCA scheme approved by ASIC and to take effect 1 July 2024: On 14 March 2024, it was announced that material changes to the AFCA Scheme had been approved by ASIC. This follows a significant review of AFCA’s Rules and Operational Guidelines (AFCA Rules). The changes to the AFCA Rules include: 

• enhanced understanding and transparency of AFCA’s decision making and clarification regarding the ‘slip rule’ and effects of AFCA determination;  
• increasing AFCA’s ability to manage inappropriate or unreasonable conduct within the scheme; 
• management of complaints where appropriate settlement offers have been made or in circumstances where issues in dispute have been previously settled;  
• changes to the language and definitions for greater clarity and transparency of the scheme’s operation; 
• changes to clarify AFCA’s transparency and reporting obligations; and 
• provision of further clarity regarding the exclusion of complaints lodged by sophisticated or professional investors unless exceptions apply.  

The new AFCA Rules will apply to complaints lodged on or after 1 July 2024.  

18. AFCA publishes updated Systemic Issues Insights Report: AFCA has released its biannual Systemic Issues Insights Report which shares key systemic issue insights with consumers, stakeholders, and member firms, with the aim of improving industry practices. Relevantly, in the first half of the 2023-2024 financial year, AFCA:

• identified and investigated systemic issues that resulted in remediation to 139,011 consumers; 
• conducted 111 detailed systemic issues investigations, some of which are ongoing; 
• resolved 43 systemic issues with financial firms; 
• facilitated remediation and/or refunds of over $40 million to consumers relating to systemic issues; and 
• 93 matters were referred externally to other regulators, including ASIC, APRA, the OAIC, and the ATO. 

The majority of systemic issues identified were in the banking and finance industry (28), followed by superannuation (11) and general insurance (6). 

Legislative Updates 

19. Crimes Legislation Amendment (Combatting Foreign Bribery) Bill receives royal assent: On 8 March 2024, the Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023 received royal assent following the House of Representatives agreeing to certain amendments made by the Senate. The Bill repeals section 70.2(1) of the Criminal Code and replaces it with a new offence of bribing a foreign public official and, in the process, addresses challenges faced by authorities in prosecuting the offence. At a high level, these changes will:  

• expand the existing foreign bribery to include that which is conducted to obtain a personal advantage; 
• remove the requirement that the benefit or business advantage be “not legitimately due” and replaces it with the concept of “improperly influencing” a foreign public official; 
• removes the existing requirement that the foreign public official is influenced in the exercise of their official duties; and 
• clarifies that the foreign bribery offence includes either the obtaining of a business or personal advantage (or both), and that the advantage can be obtained for another person. 

The amendments also introduce a new offence of ‘failing to prevent bribery of a foreign official’, in which a corporation will be criminally liable where an associate has committed an offence under section 70.2, unless it can be demonstrated that ‘adequate procedures’ were in place to prevent the offence. 

Notably, the Bill did not introduce deferred prosecution agreements as had previously been contemplated. 

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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 
Cinzia Donald, Partner (Lavan) 
Anna Fanelli, Senior Associate 
Zira Norman, Senior Associate 
Philip O’Brien, Senior Associate
Nigel Mok, Associate 
Patrick Simon, Associate
Tehlyn Murray, Associate 
Monica Baur, Solicitor 
Declan Melia, Lawyer 
Fiona Ng, Lawyer
Natalia Saman, Law Graduate (Lavan)