Gadens Regulatory Recap – 16 May 2024

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

ASIC  

1. Scam alert: Scammers are changing the way they impersonate financial services businesses in sophisticated bond and term deposit scams: ASIC has issued a warning to consumers about a rise in the sophistication of fake bond and term deposit scams. Increasingly, the regulator is receiving reports of scams involving the impersonation of lesser-known financial services businesses which often have no website or digital footprint. These scams work by stealing the identity of a legitimate financial services business or bank, along with the details of their financial products. Information such as investment terms and credit ratings are then replicated in fake online ads and investment materials. 

Consumers fall victim to these types of scams as the warning signs are not obvious. Unlike “too good to be true” scams, the investment returns being advertised will usually appear reasonable. Scammers are also careful not to rush decisions and will often present as knowledgeable. Detecting these scams is further hampered by the fact that there is little information online to compare against the scammer’s ‘fake’ website or emails.  

ASIC’s advice is that to protect consumers, companies should advise against acting on suspicious social media posts and encourage independent verification. Consumers should also be urged not to transfer funds into a bank account unless it is in the name of the relevant financial services business. If scammed, consumers should cease contact, report it to authorities, and warn others. The key message from ASIC is that vigilance and verification are essential to safeguard against these types of scams. 

2. ASIC releases summary document for identifying and supporting First Nations consumers experiencing financial abuse: On 29 April 2024, the Australian Securities & Investments Commission (ASIC) published a summary document regarding the identification and support of First Nation consumers who may be experiencing financial abuse. The summary document was released following a virtual workshop that was hosted on 14 March 2024, which highlighted opportunities for improvements across several financial service providers. In June 2024, ASIC will host the next financial services industry representatives workshop which will focus on best practice engagement for First Nations communities and consumers.
3. ASIC Chair Joe Longo gives Opening Statement to the Parliamentary Joint Committee on Corporations and Financial Services, Oversight of ASIC, the Takeovers Panel and the Corporations Legislation: ASIC Chair Joe Longo presented an opening statement at the Parliamentary Joint Committee on Corporations and Financial Services on 30 April 2024. Mr Longo’s speech underscored ASIC’s recent enforcement activities. Notable milestones include ASIC commencing 150 new investigations last year, obtaining its first finding of liability against a company for ‘greenwashing’, and providing its first infringement notice to the ASX for breaching pre-trade transparency rules. It has also continued with its strong record on pursuing criminal action where appropriate, including a defendant recently being sentenced to a term of imprisonment for misleading share trading. ASIC also has over 20 active court matters on foot and has imposed significant penalties for various contraventions in the previous financial year. Mr Longo also drew attention to ASIC’s utilisation of new regulatory powers, including issuing the first final stop order under the new design and distribution obligations regime.  

The key takeaway from Mr Longo’s speech is that the regulator is committed to pursuing legal action and making use of all available regulatory tools at its disposal to ensure consumer protection. 

4. Greenwashing: A view from the regulator – Keynote speech by ASIC Chair Joe Longo at the RIAA Conference Australia, 2 May 2024: ASIC Chair Joe Longo followed up his recent speech to the Parliamentary Joint Committee with a keynote speech at the RIAA Conference Australia, emphasising the importance of combating greenwashing to uphold trust in sustainable finance-related products and services. Mr Longo outlined ASIC’s approach to the issue, focusing on enforcing legal obligations against entities making inaccurate or misleading sustainability claims. ASIC’s interventions against greenwashing to date include issuing infringement notices and pursuing civil penalty proceedings.  

Mr Longo discussed the evolution of greenwashing, noting that it is not a new concept but rather a recent manifestation of misleading or deceptive conduct. He outlined the common types of greenwashing conduct and emphasised the need for responsible entities to ensure they make accurate and substantiated sustainability claims to ensure informed decision-making by investors. 

ASIC supports the introduction of internationally aligned mandatory climate-related financial disclosure requirements in Australia to improve transparency and combat greenwashing. Other initiatives like the development of a sustainable finance taxonomy and labelling system for investment products were also endorsed.

The speech reiterated the importance of accuracy and transparency in sustainable finance and affirmed ASIC’s commitment to combatting greenwashing to maintain market integrity and investor trust. 

5. ASIC enforcement activities: ASIC has engaged in a broad range of enforcement activities over the course of the past fortnight. 

ASIC and the Markets Disciplinary Panel has issued a fine of $775,000 to JP Morgan Securities Australia Limited for permitting suspicious client orders to be placed on the futures market, ASX 24. ASIC’s investigation found that, between 11 January and 3 March 2022, a client placed 36 orders that JP Morgan should have suspected were submitted with the intention of creating a false or misleading appearance relating to the market for the Eastern Australia Wheat futures January 2023 (WMF3) contracts. The Market Disciplinary Panel found that the orders exhibited characteristics of being placed to manipulate the market, and that JP Morgan’s failure to identify the trades as suspicious was “careless”. JP Morgan has complied with the infringement notice and made payment of the fine. 

The founder of Eneco Refresh, Mr Henry Heng, was sentenced to a recognisance release order on providing a security of $10,000 for a good behaviour period of 12 months. Mr Heng pled guilty and was convicted of nine counts of breaching section 205G(10) of the Corporations Act 2001 (Corporations Act) for failing as a director to notify the market operator of a change in his interests. These charges follow Mr Heng’s sentencing of 18 months imprisonment for market manipulation and false or misleading appearance of active trading on 19 April 2024. 

On 7 May 2024, the director of Metal Alpha Pty Ltd, Mr Brett Trevillian, pleaded guilty to two offences of making a false document with the intention of obtaining a financial advantage, and two offences in respect to reports related to two of the offered products. Gadens previously covered Mr Trevillian’s charges in the 8 August 2023 edition of the Regulatory Recap. 

ASIC has commenced proceedings in the Federal Court against an individual and his related companies, Principal Financial Services Pty Ltd, Sc, Provest Enterprises Pty Ltd, and Superfunds Australia Pty Ltd ITF Principal Superannuation Fund. ASIC is undertaking an investigation into the operations of the companies in relation to financial advice and client trading activity from January 2016 onwards. The Federal Court has made orders to preserve the assets of the company and Mr Prakash, as well as to prevent him from leaving Australia. The matter is listed for a case management hearing on 16 May 2024. 

Two company directors based in Western Australia have been convicted and fined $5,000 each for failing to comply with section 1272C(2) of the Corporations Act after failing to have director identification numbers. Magistrate Crawford SM stated, in making the sentences, that efforts had been made by government agencies to ensure directors were aware of their obligations to obtain director identification numbers. 

On 3 May 2024, the Federal Court found that BPS Financial Pty Ltd (BPS) engaged in unlicensed conduct in offering the “Qoin Wallet”, which was a non-cash payment facility using a crypto-asset token “Qoin”. Justice Downes found that BPS contravened the Corporations Act from January 2020 as it did not hold an Australian Financial Services Licence, and was not otherwise authorised to issue or provide financial advice. It was also held that BPS engaged in misleading or deceptive conduct and made misleading or false representations about the Qoin Wallet. This matter is the first court outcome obtained by ASIC relating to a non-cash payment facility involving crypto assets. Penalties are yet to be determined by the Court. 

APRA 

6. APRA and ASIC release notes on Superannuation CEO Roundtables – March 2024: APRA and ASIC have released their notes on the Superannuation CEO Roundtables held on 27 and 28 March 2024. The notes provide an insight into the prevailing sentiment amongst CEOs in light of the extensive regulatory changes facing the industry, including the Financial Accountability Regime (FAR), Prudential Standard CPS 230 Operational Risk Management (CPS 230), in addition to the current Prudential Standard CPS 234 Information Security (CPS 234).  

Discussions were focused on ensuring member services are delivered efficiently, honestly and fairly. The CEOs acknowledged that trustees face a number of challenges in responding to the revised regulations. However, they recognised the importance of the new regulatory requirements in promoting industry accountability, identifying process risks and the impact their respective controls and mitigation actions can have on the member experience as a whole.  

Overall, ASIC and APRA emphasised the importance for the industry to foster a strong culture of transparency, accountability and consistency. 

7. APRA Executive Board Member Suzanne Smith – Speech to the All Actuaries Summit 2024: APRA Executive Board Member Suzanne Smith gave a speech at the All Actuaries Summit on 1 May 2024. Titled ‘Think Bigger: The Power of a Thriving Insurance Industry‘, the speech addressed APRA’s current views on the key issues and challenges affecting the life insurance industry in Australia. Member Smith noted that the main challenges facing the industry include:   

• Declining retail business sales and a declining number of financial advisors. 
• Pricing practices and legacy product design which have raised questions around the industry’s long-term sustainability. 
• A failure of product innovation to keep pace with societal, demographic and lifestyle changes. 
• Erosion of trust in the industry. 
• External factors like rising interest rates and cost-of-living pressures.  

Member Smith emphasised APRA’s support for insurers to address these challenges, including by creating innovative products that are adapted to today’s demographics and risk profiles, and increasing transparency around risk assessment, product design and pricing processes to rebuild consumer trust.   

APRA recognises that collaboration is key, emphasising that building a thriving industry requires a united effort from all stakeholders, including insurers, industry bodies, government, financial advisors, and consumer groups.

ACCC 

8. National Anti-Scam Centre releases report on 2023 scam activity: On 28 April 2024, the National Anti-Scam Centre (NASC) released its report entitled ‘Targeting Scams: Report of the National Anti-Scam Centre on scams activity 2023.” The report provides a comprehensive review of the activities of the NASC, with key observations including that: 

• total combined losses of $2.74 billion were reported to Scamwatch, ReportCyber, IDCARE, Australian Financial Crimes Exchange, and ASIC in 2023, which is a reduction from the $3.1 billion reported in 2022; 
• Reports of scams increased by 18.5% to over 601,000 reports; and 
• The top scams by loss were investment scams ($1.3 billion), remote access scams ($256.0 million), and romance scams ($201.1 million).  

The Report also detailed various successful activities used by government, law enforcement, and industry to disrupt scams, including data sharing of scam phone numbers and bank account details, use of intelligence to enhance detection of scams, the take down of over 3,500 investment scam websites, diverting scam victims to IDCARe and other assistance, and the stopping of scam payment transactions. 

ATO 

9. ATO welcomes the IGTO’s interim report – Tax Identity Fraud: an own initiative investigation: The ATO has welcomed the Inspector-General of Taxation/Taxation Ombudsman (IGTO)’s report on Tax Identity Fraud, affirming its support for the ongoing investigation and agreeing with most of the IGTO’s recommendations. The ATO highlights the increasing threat of identity fraud, emphasising its impact on Australia’s ability to fund essential services and the everyday lives of citizens. 

Focused on security and fraud prevention, the ATO has implemented stronger controls for myGovID users, prioritising the safety of taxpayers’ information and Australia’s revenue protection. Taxpayers are urged to play a significant role in protecting their personal information online, as Personally Identifiable Information exposure increases the risk of data theft and subsequent fraudulent activities. Vigilance in information sharing and system security is emphasised. In cases of compromised taxpayer identities, the ATO activates stringent security measures and collaborates with affected individuals to remedy the situation. 

Continued collaboration with regulators, banks, law enforcement partnerships and taxpayers is emphasised to enhance fraud prevention efforts, with the IGTO’s recommendations aligning with ongoing initiatives to fortify defence mechanisms. 

Taxpayers are encouraged to promptly report suspicions of stolen TFN’s or illegal use of tax-related information to the dedicated ATO hotline on 1800 467 033. 

AUSTRAC 

10. Second consultation commences on AML/CTF reforms: The Attorney General’s Department (AGD) has launched the second stage of consultation regarding the proposed reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. The first round of consultation in April 2023 to June 2023 provided important insights regarding improvements needed to the AML/CTF regime. The second series of consultation papers were developed following feedback from the first round of consultation and include:  

• Overview – Reforming Australia’s anti-money laundering and counter-terrorism financing regime; 
• Paper 1: Further information for real estate professionals; 
• Paper 2: Further information for professional service providers; 
• Paper 3: Further information for dealers in precious metals and precious stones; 
• Paper 4: Further information for digital currency exchange providers (DCEPs), remittance service providers and financial institutions; and 
• Paper 5: Broader reforms to simplify, clarify and modernise the regime (which will apply to current and new proposed reporting entities). 

Feedback from the current and proposed new reporting entities on the reforms closes at 5:00pm AEST Thursday 13 June 2024. 

OAIC 

11. Keynote address by Privacy Commissioner Carly Kind at the Privacy by Design Awards: Privacy Commissioner Carly Kind delivered a keynote address at the CyberCX and Tech Council of Australia Privacy by Design Awards on 2 May 2024. The speech provided a comprehensive overview of the concept of ‘privacy by design’ and its application to the evolving landscape of digital privacy and regulation in Australia.  

‘Privacy by design’ is a process for embedding good privacy practices into the design specifications of technologies, business practices and physical infrastructures. The OAIC explains that this means building privacy into the design specifications and architecture of new systems and processes. 

Ms Kind’s address highlighted the significance of Privacy Awareness Week, with an emphasis on the theme of power in privacy, particularly in empowering individuals through strengthened privacy practices. Key issues discussed in the speech include: 

• the crucial role of leadership in supporting privacy from the top down. Ms Kind has urged organisations to integrate privacy considerations from the outset of their product development strategies, aligning with changes in the Privacy Act.  
• the importance of fair and reasonable personal information handling, which will be mandated by proposed reforms to the Privacy Act.   
• Encouraging the use of privacy-preserving technologies such as encryption and the upcoming Digital ID scheme to mitigate privacy risks.  
• The necessity of continuous improvement and monitoring, particularly in response to data breaches under the Notifiable Data Breaches scheme.

In conclusion, Kind expressed optimism around upcoming privacy reforms, highlighting their potential to strengthen regulatory oversight, empower individuals, and foster innovation in a trusted data environment. The Commissioner urges collective action to “power up privacy” in preparation for the evolving data age and a new era of privacy reform.   

12. OAIC submission to Treasury – Consultation on Buy Now Pay Later regulatory reforms: The OAIC has released its submission on Treasury’s draft Buy Now, Pay Later (BNPL) regulatory reforms. The proposed reforms will amend the National Consumer Credit Protection Act 2009 (NCCPA) to bring BNPL providers under the existing regulatory framework for other credit products.

BNPL providers are currently generally exempt from credit reporting provisions of s6 of the Privacy Act. The OAIC is broadly supportive of the proposed changes in the Draft National Consumer Credit Protection Amendment (Low Cost Credit) Regulations 2024 that will require licensees to obtain credit information from a credit reporting body as part of its suitability assessment before providing BNPL credit. OAIC agrees with Treasury that the current lack of regulation has the potential to result in poor consumer outcomes for individuals. The OAIC also expressed support for a broader review of Australia’s credit reporting framework, emphasising the need for alignment between the regulatory frameworks under the NCCPA and the Privacy Act. 

Treasury 

13. Response to PwC – Government consults on tax regulator information gathering powers and regulation of accounting, auditing and consulting firms in Australia: The Federal Government has opened two consultations as part of its response to the tax leak scandal at consulting firm PWC. 

Treasury has released two consultation papers and is seeking input from interested stakeholders.

The first consultation paper is concerned with the regulation of accounting, auditing and consulting firms and seeks stakeholder feedback on the adequacy of:  

• prescribed governance requirements at large partnerships;  
• current professional standards regulations and transparency requirements; and  
• regulatory enforcement capabilities.  

Submissions on the first consultation paper are open until 28 June 2024.

The second consultation paper is concerned with the tax regulator’s information gathering powers and seeks stakeholder views on:  

• whether the ATO’s information gathering powers are fit for purpose; and  
• the limitations on the Tax Practitioners Board to use formal information gathering powers prior to commencing a formal investigation.  

Submissions on the second consultation paper are open until 31 May 2024 

14. Treasury consulting on exempting interfunding from mandatory foreign investment notification: The Australian Government is seeking stakeholder feedback on regulatory changes to interfunding transactions as part of the 2023-24 Commonwealth budget.  

With a view to reducing the regulatory burden on interfunding activities, Treasury announced that it would exempt interfunding transactions from certain notification requirements and feeds under the Foreign Acquisitions and Takeovers Act 1975 (Cth). The government has produced draft regulation to this effect and is seeking stakeholder feedback.  

The consultation closes on 31 May 2024.  

RBA 

15. RBA report on the Private Equity Market in Australia: The RBA has released a report on the current state of the Private Equity Market in Australia. The Australian private equity market has seen significant growth in recent years, with assets under management in Australian-focused private equity funds nearly tripling since 2010, reaching $66 billion by June 2023. The market has dropped off significantly over the past 12 months, largely due to higher borrowing costs. The Australian private equity market remains small compared with international markets and public equity market, despite some larger deals in recent years. 

If you found this insight article useful and you would like to subscribe to Gadens’ updates, click here.

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
Philip O’Brien, Senior Associate
Zira Norman, Senior Associate
Bronte Anderson, Associate
Tehlyn Murray, Associate
Carla Simmons, Lawyer
Declan Melia, Lawyer
Jin Lim, Lawyer
Kartia Bouras, Lawyer
Ellie Pitcher-Willmott, Paralegal