Gadens Regulatory Recap – 23 January 2024

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

ASIC

1. ASIC extends product intervention orders for short term credit and continuing credit contracts: On 5 January 2024, the Australian Securities Investments Commission (ASIC) extended its product intervention orders made in relation to continuing credit contracts and short-term credit until 1 October 2032. The orders continue to reinforce consumer protections for vulnerable retail clients, particularly those in financial difficulty who required loans for basic living expenses, of which short term credit and continuing credit contracts have unreasonably high fees. The orders have been effective in reducing significant harm arising from such products.
2. ASIC Enforcement Activities: Since our last edition of the Gadens Regulatory Recap, ASIC has engaged in various enforcement activities.

• ASIC has disqualified two property directors from managing corporations for two years due to their involvement in the failure of four companies between January 2019 and August 2021. ASIC found that the directors failed to manage the companies to the standard expected of company directors. On 21 December 2023, a liquidator disciplinary committee imposed conditions on the registration of Steven Naidenov, a registered liquidator. Mr Naidenov is required to arrange for a peer review of six external administrations, at his own cost, over the course of the next two years. The Committee has also determined that ASIC ought to determine which administrations require peer review, and that a direction should be made that Mr Naidenov not accept further appointments as a liquidator until 30 April 2024.
• On 19 January 2024, following referral to the Commonwealth Director of Public Prosecutions, the Federal Court ordered Members Equity Bank Limited (ME Bank) to pay a penalty of $820,000 after pleading guilty to criminal charges of making false and misleading representations and failing to provide required written notices regarding home loans. Relevantly, ME Bank has remediated impacted customers.
• Finally, on 10 January 2024, the Federal Court ordered four current and former directors of Endeavour Securities (Australia) Ltd (in liquidation) and Linchpin Capital Group Ltd (in liquidation) to pay $390,000 in penalties. Gadens acted for ASIC in this matter and has released a comprehensive update in relation to the judgement.

APRA

3. APRA moves to reinforce requirements for banks to manage interest rates: On 12 December 2023, the Australian Prudential Regulation Authority (APRA) released updated requirements for banks through revisions to Prudential Standard APS 117 Interest Rate Risk in the Banking book (IRRBB) and commenced its consultation on some aspects of APS 117.

The IRRBB revisions are targeted at banks improving how they manage the impact of interest rate changes on their financial position and include:

• removing and simplifying complexities in the IRRBB;
• a reduction in part of the volatility in the IRRBB capital charge; and
• raising the measurement of risk and standards of governance to create improved incentives for banks to manage their IRRBB risk.

The proposals in the response paper confirm that all banks are required to manage material risks, contingent upon the complexity, nature and scale and including IRRBB. Following a three-month consultation on the latest proposed revisions, it is intended that APS 117 will be finalised by mid-2024 ahead of the updated standard taking effect from 1 October 2025. 

4. APRA and ASIC release an update on premium increases in the life insurance industry: The joint letter from APRA and ASIC outlines APRA and ASIC’s observations and regulatory expectations regarding premium increases. Findings indicate concerns about the lack of transparency in re-rating premiums, potentially misleading marketing graphs, and insufficient disclosure on how premiums change. Life companies are urged to enhance risk management around re-rating, clarify contract terms, and design products with consumer-focused premium stability.
5. APRA is ceasing several of its ad hoc data collections for ADIs: On 15 December 2023, APRA announced that several ad hoc data collections for authorised deposit-taking institutions (ADIs), including several COVID-19 collections, would cease with immediate effect.

As set out in APRA’s letter to ADIs on 15 December 2023, these include:

• ARF 922.3: COVID-19 Liquidity – MLH
• ARF 923.3: COVID-19 Quarterly Capital and Credit
• ARF 923.4: COVID-19 Forward Looking Information
• Major Bank Loan Deferrals Collection
• ARF 922.0: COVID-19 Liquidity – LCR (Level 1/Domestic)
• ARF 922.1: COVID-19 Liquidity – LCR (Level 2)
• ARF 922.2: COVID-19 Liquidity – MLH Forecast
• AFR 923.1: COVID-19 Provisioning (only for reporting entities which fall under the provisioning methodology of APS 220 Credit Risk Management, Attachment B).

6. APRA retires prudential practice guides on the risk management framework for life and general insurers: APRA has retired Prudential Practice Guide GPG 250 (Balance Sheet and Market Risk) and Prudential Practice Guide LPG 250 (Asset and Liability Management Risk) as part of its strategic initiative to modernise the prudential architecture.

The retirement of the practice guides is effective immediately as of 15 January 2024.

ACCC

7. Web hosting business pays penalties for allegedly misleading customers about ‘free gifts’: The ACCC has continued to investigate the “concerning conduct” of subscription traps by issuing Dreamscape Networks International Pte Ltd (operator of crazydomains.com.au) with three infringement notices and $56,340 in penalties. Dreamscape allegedly made false or misleading representations about ‘free’ products added at checkout between October 2019 and November 2023. These products turned out to be additional subscription services that would auto-renew and charge consumers further fees, despite being held out as ‘free’ at checkout.  The ACCC also alleged Dreamscape sold a misleading domain privacy product, reminding businesses that they “must provide consumers with accurate information about the products or services they are purchasing.”
8. Airbnb to pay $15m in penalties and up to $15m compensation for misleading consumers: Following proceedings issued by the ACCC, the Federal Court ordered that Airbnb Ireland UC (Airbnb) pay $15 million in penalties and provide impacted consumers up to $15 million in compensation, for misleading consumers regarding the currency of prices on its platform. Airbnb admitted that between January 2018 and August 2021, it displayed accommodation prices to Australian consumers with a dollar sign, but without an indication of whether the price was in Australian dollars or US dollars. As a result, it was estimated that about 63,000 Australian consumers made over 77,000 bookings in US dollars over this period. ACCC Chair Gina Cass-Gottlieb commented that “affected consumers ultimately paid significantly more than they expected to pay because of the prevailing USD/AUD exchange rate at the time. Some users also paid additional charges to their banks as a result of paying in a foreign currency”.
9. Crusader Caravans pays penalties for allegedly misleading consumers about waterproof testing: The ACCC issued two infringement notices to Victorian caravan manufacturer, Crusader Caravans, who paid a total of $33,000 in penalties for alleged false or misleading representations. In a consumer publication available between December 2022 and April 2023, Crusader Caravans stated it conducted tests on caravans to check for ‘waterproofing in storm-like conditions’. However, such tests were not conducted and were instead designed to only check for water resistance. The infringement notices follow in light of the ACCC’s broader focus on improving compliance with the Australian Consumer Law within the caravan industry. In this respect, the ACCC has published consumer guidance for buying a new caravan, a caravan retailing report in July 2022, and a warning to the caravan industry regarding misleading price and caravan weight claims in October 2023.
10. ACCC responds to merger reform proposals: On 20 December 2023, the ACCC published its preliminary submission, in response to Treasury’s paper on merger reform, outlining its proposed changes to the current regime. The ACCC argues that it is insufficiently empowered to prevent anti-competitive mergers taking place in Australia. Presently, merger parties are not required to notify the ACCC of potential acquisitions, nor is clearance from the ACCC required before merger transactions can proceed. Treasury’s paper suggested options to overcome this regulatory gap, such as:

• introducing a requirement on merger parties to notify the ACCC of mergers, but empowering the Federal Court to determine whether a merger is anti-competitive; and
• introducing a voluntary notification option.

In its submission, the ACCC stated that the options proposed by Treasury are insufficient and out of step with Australia’s international peers. The ACCC warns that the absence of meaningful reform in this space poses risks to Australia’s competitive market economy, small businesses, and consumers.

11. ACCC proposes to authorise AMA NSW to collectively bargain with NSW Health and public health organisations: The ACCC proposes to grant the Australian Medical Association (NSW) Limited (AMA NSW) authorisation to continue collective bargaining with New South Wales Health and public health organisations on behalf of visiting medical officers engaged in the New South Wales public hospital system. The authorisation is proposed to be granted for a period of 10 years. The ACCC also granted AMA NSW interim authorisation to continue engaging in the above-described conduct while it considers the substantive application.

Submissions responding to the draft determination must be made to the ACCC by 31 January 2024. The ACCC will then make its final decision.

12. ACCC proposes to deny authorisation to Bakers Delight to implement price tiers in new point-of-sale system: On 14 December 2023, the ACCC released a draft determination denying authorisation to Bakers Delight Holdings Ltd (Bakers Delight) in respect of the latter’s application to implement a price tiering system for a range of promotional products in its new point-of-sale system (POS System). Whilst the existing POS System allows for individual bakeries to set the price of promotional discounts, the new POS System limits deviations and does not allow for individual bakeries to modify either the price of the discount or the products to which the promotional discount applies. The ACCC considered the proposed conduct to potentially result in public benefits by way of avoiding additional technology fees and costs to the franchisee bakeries, but ultimately would require further submissions from the franchisees and Bakers Delight directly to determine the weight of any such benefit. However, the ACCC considers that as the proposed conduct limits the ability of franchisees to make independent decisions that affect their financial viability, this will likely result in significant public detriment, such that the ACCC was not satisfied the public benefit would outweigh detriment.

Submissions responding to this draft determination must be made to the ACCC by 19 January 2024. The ACCC will then make its final determination.

13. Franchisors warned to remove unfair contract terms or risk legal action: An ACCC report on standard form franchise agreements published 14 December 2023, shows the ACCC’s findings and concerns following a series of targeted franchising compliance checks.  Alarmingly, the report found that every franchising agreement reviewed contained terms that were potentially unfair under the Australian Consumer Law (ACL). The report was prepared following amendments to the ACL empowering the ACCC to penalise franchisors touting unfair contract terms (though the test for what constitutes an unfair term remains uncharged).  The contracts surveyed were taken from across franchisors in a range of industries and the offending clauses typically included unilateral variation clauses, withholding and set-off payment clauses, audit power clauses, restraint of trade clauses and termination clauses. The ACCC concludes that it holds concerns ‘that franchisors are failing to grasp the importance of complying with the unfair contract terms provisions of the ACL.’

Tips for franchisors to avoid unfair terms can be found on the ACC website here.

AFCA 

14. AFCA records more than 100,000 complaints in 2023: AFCA has released a high level report of its complaint volumes over the past year. Key takeaways include:

• AFCA has for the first time recorded 100,000 complaints in a calendar year;
• scam-related complaints to AFCA have nearly doubled between 2022 and 2023;
• increased interest rates and cost of living pressures are impacting consumers, with complaints involving financial hardship significantly higher.

AFCA has described the increased caseload as “unsustainable” and notes that the volume of complaints is putting unnecessary pressure on the external dispute resolution system and inevitably causing further delays for consumers. CEO David Locke has expressed the need for financial firms to do a better job of handling complaints within their own internal complaints processes, so that only the most complex cases reach AFCA. The above comments suggest that AFCA members can expect to see increased complaint processing times for the foreseeable future, unless firms can first resolve those complaints in-house.

OAIC

15. OAIC publishes Summary report of Consumer Data Right assessment: The Office of the Australian Information Commissioner (OAIC) has published its report on Consumer Data Right (CDR) consent and authorisation processes. The report follows an assessment conducted by the OAIC in February 2023 on six CDR participants, including three accredited data recipients (ADRs) and three banking sector data holders. The evaluation aimed to determine compliance with the consent obligations outlined in Divisions 4.2 and 4.3 of the Competition and Consumer (Consumer Data Right) Rules 2020 (CDR Rules) for ADRs and the authorisation obligations in Division 4.4 for data holders. The findings revealed that, overall, three data holders and two ADRs demonstrated a high level of compliance with the consent and authorisation obligations. However, one CDR principal’s representative arrangement showed a lower level of compliance.

The report identified seven areas of non-compliance across three CDR participants, including:

• CDR principals failing to ensure that their CDR representatives seek consumers’ consent in accordance with the CDR Rules;
• failing to ensure CDR representatives’ consent flows were compliant with the data minimisation principle; and
• failing to properly advise consumers on policies regarding data deletion or de-identification policies.

The OAIC communicated its findings and recommendations to all CDR participants assessed. Participants are also referred to the guidance materials in the report for further information.

Treasury 

16. Petroleum Resource Rent Tax – anti-avoidance provisions and clarifying treatment of certain terms: Treasury has released a series of exposure draft documents updating the Petroleum Resource Rent Tax (PRRT) Gas Transfer Pricing Arrangements, including a commitment to update the PRRT anti-avoidance rules. The exposure draft documents amend the PRRT anti-avoidance rules to make them consistent with the income tax anti-avoidance rules that effect all corporate income. The draft documents also seek to tighten the definition of ‘exploration’ and ‘mining, quarrying and prospecting rights’ to ensure that they are not interpreted too broadly and are consistent with the Full Federal Court’s decision in Commissioner of Taxation v Shell Energy Holdings Australia Limited. 

Treasury is seeking views from interested parties on both exposure drafts and the associated explanatory material. Submissions are open until 9 February 2024.

17. Competition in the provision of clearing and settlement services – ministerial instruments: Treasury has released exposure draft Corporations and Competition (CS Services) Instrument 2024 (Instrument) for consultation. Briefly, the draft Instrument proposes to:

• provide ASIC with powers to make further delegated legislative instruments imposing requirements on providers of clearing and settlement services (CS Services) that relate to “cash equities” financial products (as defined in the Instrument). The Instrument will allow ASIC to impose requirements dealing with the activities, as well as conduct and governance arrangements of these CS facility licensees and associated entities; and
• declare that access to these “cash equities” CS Services may be the subject of negotiations or arbitrations under Part XICB of the Competition and Consumer Act 2010 (Cth).

Submissions in relation to the draft Instrument are open until 1 March 2024. Treasury is particularly interested in feedback on the appropriateness of the proposed definition of “cash equities”, and whether there is competition in any of the CS services proposed to be covered under that definition. 

18. Climate-related financial disclosure – exposure draft legislation: The Australian Government is pushing for greater transparency over entities’ exposure to climate-related financial risks and opportunities, and climate-related plans and strategies with the introduction of the exposure draft for the Treasury Laws Amendment Bill 2024: Climate-related Financial Disclosure (Draft Bill) on 12 January 2024.

The Draft Bill would amend the Australian Securities and Investments Commission Act 2001 (Cth) and Corporations Act 2001 (Cth) to require the following entities to lodge a ‘sustainability report’ each financial year, alongside their existing reporting obligations:

• entities lodging annual reports under Chapter 2M of the Corporations Act;
• asset owners (such as registrable superannuation entities) who manage funds greater than $5 billion; and
• entities that are subject to reporting obligations under both the Corporations Act and the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act).

Exemptions would apply for small and medium businesses, with reporting for the above entities to be phased in by 2027, depending on consolidated revenue, gross assets and employee count. ‘Sustainability reports’ would need to comply with relevant standards set by the Australian Accounting Standards Board, and include:

• Climate statements for the year – being details of material climate risks or opportunities (or lack thereof), including governance, strategy, risk management, metrics and targets. Reporting may vary depending on different ‘scopes’ of emissions set out in NGER Act and by the Greenhouse Gas Protocol’s technical guidance;
• Notes to the climate statements – essentially providing additional information or disclosures, as required; and
• Statements on any further matters required by the Minister.

Reporting entities would also need to maintain records regarding the preparation of each part of the sustainability statements. Disclosures through this new framework would be subject to existing liability frameworks including director’s duties, misleading and deceptive conduct provisions, and general disclosure obligations.

Consultation on the Draft Bill is open until 9 February 2024.

19. Petroleum Resource Rent Tax Regulations – updates for tolling arrangements: Treasury has published exposure draft legislation seeking to remake the methodology currently used to calculate the price of sales gas that is processed into liquefied natural gas (LNG) as currently set out in the Petroleum Resource Rent Tax Assessment Regulation 2015. The proposed new regulations include an insert dealing with tolling arrangements for LNG, and Treasury is seeking views from interested parties relating to this aspect ahead of the other components. Treasury is also seeking stakeholder feedback on the ATO’s administrative approach to this issue, and the quality and availability of public advice and guidance towards the same.

Consultation on the Draft Bill is open until 9 February 2024.

20. Financial Market Infrastructure Reform – Draft Legislation: Treasury has published exposure draft legislation proposing to implement a raft of reform to Australia’s financial market infrastructure announced by Government in December 2022. The reform seeks to address a range of deficiencies that have been identified by the Council of Financial Regulators, including:

• Introducing a crisis management regime to enable the RBA to step in when crises arise in domestic clearing and settlement facilities to ensure continuity of services; and
• Strengthening and streamlining regulators’ licensing, supervisory, and enforcement powers in respect of financial market infrastructure to reduce the likelihood of a crisis occurring.

Submissions on the draft legislation are open until 9 February 2024.

ALRC

21. ALRC report on proposed strategy for reforming Australia’s corporations and financial services law: The ALRC has tabled a report titled Confronting Complexity: Reforming Corporations and Financial Services Legislation (ALRC Report 141) dated 18 January 2024 and containing 58 recommendations with the intention of ‘transforming corporations and financial services legislation into a more adaptive, efficient, and navigable legislative framework.’ Broadly, the recommendations made by the ALRC promote new legislation that:

• is more clearly expressed and logically ordered;
• reduces existing unnecessary complexity in the legislative framework;
• is more flexible and adaptive to responding to new business models, practices, and technologies;
• promotes compliance with the substance and intent of the law.

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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
Anna Fanelli, Senior Associate
Zira Norman, Senior Associate 
Philip O’Brien, Senior Associate 
Patrick Simon, Associate
Declan Melia, Lawyer
Fiona Ng, Lawyer
Stephanie D’Amelio, Lawyer
Sonia Sharma, Lawyer
Chris Girardi, Lawyer