Gadens Regulatory Recap – 6 February 2024

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

ASIC

1.  ASIC and APRA issue joint letter on delay of Financial Accountability Regime (FAR) commencement and implementation: ASIC and APRA have published a joint letter to all authorised deposit-taking institutions and their authorised non-operating holding companies. The regulators note that it is appropriate to delay the commencement of FAR in circumstances where the Minister Rules have not yet been finalised. The draft Minister Rules are currently under review by Financial Services Minister, Stephen Jones. The announcement will no doubt come as a welcome relief to the banking industry who were expecting the FAR to commence on 15 March 2024. Relevant entities should nevertheless be aware that, despite this temporary reprieve, ASIC and APRA expect entities to submit their registration applications and to make relevant notifications to them as promptly as possible, and by no later than 30 June 2024.
2.  ASIC urges AFS licensees to register their financial advisers and provides a short extension to facilitate compliance: By 1 February 2024, financial advisers (or relevant providers) were required to be registered prior to providing personal advice to retail clients on relevant products. However, as at 18 January 2024, the Australian Securities Investments Commission (ASIC) advised that 26% of such financial advisers had still not registered. Accordingly, ASIC has made the ASIC Corporations (Amendment) Instrument 2024/23, which extends the registration period to 16 February 2024, with no further extensions to be granted after this time.

Guidance regarding the new requirement for financial advisers and AFS licensees of the registration of financial advisers is set out in:

• Information Sheet 276 – FAQs: Registration of Relevant Providers;
• Information Sheet 277 – Registration of Relevant Providers: Guidance on Making Declarations.

3. ASIC releases guidance for market intermediaries on pre-hedging: On 1 February 2024, ASIC released guidance relating to the practice of pre-hedging in financial markets. While the regulator acknowledged the role that pre-hedging can play, it also highlighted the significant potential for conflicts of interest between clients and the market intermediary that actively trades in possession of confidential information about a client’s anticipated trades. ASIC reiterated the importance of market intermediaries’ appropriate management of confidential client information, in accordance with the Corporations Act 2001 (Cth) (Corporations Act). Various practices were also highlighted, with ASIC noting that pre-hedging must be carried out appropriately to ensure that it is not unfair, unconscionable, or result in poor client outcomes.
4. ASIC makes statement to the Inquiry into insurers’ responses to 2022 major floods claims: On 2 February 2024, ASIC Commissioner Alan Kirkland delivered a statement to the Inquiry into insurers’ responses to 2022 major floods claims. Mr Kirkland highlighted Reports 765 and 768 which considered general insurers’ pricing promises and claims handling and identified insurer weaknesses across key areas, including:

1. 1. communication with consumers about decisions, delays, and complications:
   2. project management, and particularly, oversight of third parties:
   3. recognition and management of complaints;
   4. identification of vulnerable consumers and appropriate responses to their needs; and
   5. resourcing of claims handling and dispute resolution functions.

Mr Kirkland noted that in May and November 2023, ASIC wrote to six large general insurers requesting further information about their levels of resourcing, and changes since 2019, which revealed that resourcing in dispute resolution has failed to keep up with the number of complaints received by insurers, and that the proportion of cases resulting in complaints has risen. Mr Kirkland noted that the data ASIC has received has indicated that the shortfalls in the industry’s response to the events of 2022 cannot wholly be attributed to the extreme nature of weather events, given the “signs of deeper, longer standing issues with the industries processes, practices and resourcing that meant it was poorly prepared for those events.”

Mr Kirkland finished his address by noting that ASIC will continue to monitor the industry’s response and will consider enforcement action where the regulator becomes aware of serious failures by insurers to comply with legislative requirements.

5. ASIC delivers speech on enforcement priorities in the superannuation sector: On 1 February 2024, ASIC Deputy Chair, Sarah Court delivered an address focusing on the regulator’s enforcement priorities in the superannuation sector at the Connexus Super Chair Forum. Ms Court indicated that ASIC’s enforcement priorities in the coming year are broadly within three key themes:

1. 1. member services failures;
   2. misleading conduct (including greenwashing); and
   3. failure to protect superannuation balances.

These areas of focus reflect what the regulator sees as areas of genuine harm, and the industry should consider the need to lift performance and direct attention to the regulator’s areas of focus. Ms Court also reiterated comments the regulator has previously made that it will continue to “test the bounds of the law where it is uncertain or open to interpretation.”

6. ASIC Chair delivers speech on the regulation of AI: On 31 January 2024, ASIC Chair Joe Longo delivered a speech at the UTS Human Technology Institute Shaping Our Future Symposium on the current and future state of AI regulation and governance. Mr Longo stated that all participants in a financial system have a duty to appropriately balance innovation with appropriate and ethical use of emerging technologies, and the existing governance obligations remain unaltered by new technologies. By way of example, Mr Longo referred to the current directors’ obligations set out in the Corporations Act and indicated that directors have an obligation to appropriately consider the deployment of AI when considering their directors’ duties, and noted that ASIC is currently pursuing an action in which use of AI was involved.
7. ASIC Enforcement Activities: ASIC has engaged in a broad range of enforcement activities over the past fortnight.

ASIC has accepted a court enforceable undertaking from Elevare Pay Easy Pty Ltd (Elepay), a buy now pay later provider, resulting from Elepay’s failure to have Target Market Determinations for seven credit products between 5 October 2021 to 15 March 2023. Over this period of time, Elepay lent $13.748 million to 1,658 retail clients. ASIC has cancelled the Australian Financial Services Licence of financial services provider Indie Advice Pty Ltd, as ASIC has been made aware that the organisation had not been providing financial services.

Separately, Penta Capital Pty Ltd has agreed to pay $53,280 in compliance with four infringement notices issued by ASIC in relation to a series of alleged false and misleading statements made on Penta Capital’s website. ASIC alleges that statements made were misleading in that the organisation purported to manage assets on behalf of clients when it did not, had not been in operation for as long as the website suggested, and did not hold assets under management. Although Penta Capital has agreed to pay the infringement notices, payment of an infringement notice issued by ASIC is not an admission of liability.

ASIC has filed a contempt application in the Federal Court against Joshua Fuoco, the former director of Wealth & Risk Management Pty Ltd. In February 2018, Mr Fuoco was ordered to not carry on, or be involved in, a financial services business for ten years, however the regulator alleges that Mr Fuoco has been involved in carrying on a financial services business via five companies since March 2019.

A former corporate adviser, Cameron Waugh, pleaded guilty to insider trading in relation to Genesis Minerals Limited. ASIC alleged that, over a seven-day period in September 2021, Mr Waugh acquired 747,626 shares in Genesis while he was aware of a funding proposal that included a multi-million dollar placement of Genesis shares and a restructure of the board. The former company secretary of Continental Coal Limited (in liquidation), Jane Flegg, has pleaded guilty to three criminal charges following an investigation by ASIC. Ms Flegg pleaded guilty to a count of authorising the giving of misleading information to the ASX, one count of forging and altering a bank statement, and one count of stealing approximately $2.2 million of applicant funds.

Following a referral to the Commonwealth Director of Public Prosecutions, the former Ralan Group managing director, William O’Dwyer was sentenced to imprisonment after pleading guilty to six offences of obtaining a financial advantage by deception. Mr O’Dwyer deceived the Ralan Group’s lenders that pre-sale deposits were held in a trust account, when they were actually loaned to development companies for use as working capital. An estimated $132 million was drawn down on the relevant loan facilities, with District Court Judge Anderson stating that the conduct of Mr O’Dwyer was ongoing, deliberate, and a calculated fraud.

Finally, on 31 January 2024, the Federal Court declared that Westpac Banking Corporation engaged in unconscionable conduct in October 2016 during the execution of a $12 billion interest rate swap transaction. The bank is required to pay the maximum penalty of $1.8 million in relation to the conduct, along with $8 million for ASIC’s litigation and investigation costs.

APRA

8. APRA responds to consultation on updates to modernised Economic and Financial Statistics reporting standards and guidance: On 29 January 2024, the Australian Prudential Regulation Authority (APRA) released, in conjunction with the Reserve Bank of Australia (RBA) and the Australian Bureau of Statistics (ABS), a response regarding its proposed changes to the Economic and Financial Statistics (EFS) guidance and reporting standards. The response by APRA follows the consultation from September 2023 regarding inconsistencies found in RPG 701.0 ABS/RBA Reporting Concepts for the EFS Collection and Reporting Standard ARS 701.0 – ABS/RBA Definitions for the EFS Collection Reporting Practice Guide, and alignment with the updated capital framework released in 2021.

ACCC

9. Looking to earn extra cash? Don’t lose money to a side hustle scam https://www.accc.gov.au/media-release/looking-to-earn-extra-cash-don%E2%80%99t-lose-money-to-a-side-hustle-scam

The ACCC has announced that jobs and employment related scams were the fastest growing last year with reported losses to Scamwatch of $24.6 million – almost tripled compared to the $8.7 million in 2022.

ACCC Deputy Chair, Catriona Lowe has compared these scams to “an online game”, with “victims reporting that they are pressured to make an initial investment of their own money along with ongoing payments in order to ‘level up’ and receive a higher income when they never receive”.

The ACCC has provided consumers with some common indicators of potential scams, including:

• Job ads on social media offering flexible hours, remote working, attractive pay-rates or guaranteed income for “boosting” products, and potential pitching as a side hustle;
• Directing users to an encrypted messaging app such as WhatsApp for further information;
• Requiring payment of an initial sum in order to complete tasks, after which the individual is asked to make ongoing payments to receive a higher income; and
• Indications that no experience is required, all training is provided and minimal paperwork is necessary.

Victims of scams are advised to immediately contact their bank, file a police report via ReportCyber and report the scam to Scamwatch.

10. National Anti-Scam issues Swift warning: The National Anti-Scam Centre has issued a warning to Swifties looking to enter their Eras era, highlighting a spike in reports of scammers attempting to scam fans looking to buy concert tickets. As of 24 January, Scamwatch had received 273 reports of people being scammed into buying tickets for The Eras Tour on social media, with Australians having lost over $135,000, with this figure expected to continue to rise. ACCC Deputy Chair indicated that the regulator is “working with law enforcement and social media platforms to combat these scams”, and that tickets should only be purchased from the authorised reseller, Ticketek Marketplace.

OAIC

11. OAIC submission on Digital ID Bill 2023 and Digital ID (Transitional and Consequential Provisions) Bill 2023: The Office of the Australian Information Commissioner (OAIC) has published its submission on the Digital ID Bill 2023 and the Digital ID (Transitional and Consequential Provisions) Bill 2023 (Digital ID Bills). The Digital ID Bills aim to address the risks of online identity crime and cyber-attacks by reducing the need for individuals to repeatedly share copies of their personal identity documents with third parties.

The OAIC is generally supportive of the Digital ID Bills but emphasises the importance of ensuring robust privacy protections and regulatory oversight in the proposed digital ID framework. The OAIC has raised some additional points for consideration and amendment. These changes are relatively narrow and include enhancing protections around disclosure of information and increasing clarity around civil and criminal penalties for breaches by accredited entities.

The bills have passed both houses and are currently before the Senate Economics Legislation Committee for inquiry. The Committee’s report is due to be published by 28 February 2024.

12. OAIC submission to the Joint Committee on Law Enforcement initiated inquiry into the capability of law enforcement to respond to cybercrime: The OAIC has made a submission to the Joint Committee on Law Enforcement’s inquiry into the capability of law enforcement to respond to cybercrime. The submission highlighted the importance of appropriate privacy regulation in order to maintain effective cyber security, noting that “privacy and cyber security are inextricably interwoven and when an entity’s cyber security fails, individual’s privacy can be compromised.” The OAIC noted that many Australian entities do not have sufficient or appropriate cyber security, and many rely on digital products that are likely to have inherent vulnerabilities that can be exploited, and referred to the recent investigation and commencement of civil penalty proceedings against Australian Clinical Labs Limited relating to a serious data breach.

The recommendations made by the OAIC include:

• that any limited use mechanism is designed in consultation with regulators to ensure that it does not preclude regulatory action in the public interest, or legislative reporting requirements;
• that the OAIC is appropriately resourced to carry out its powers and functions under the Privacy Act;
• that reforms to the Privacy Act are progressed as a matter of priority; and
• collaboration and information sharing mechanisms should be encouraged to reduce the regulatory burden on entities.

13. New OAIC Commissioners commence their appointments: Two new commissioners will commence their roles with the OAIC in February. Incoming FOI Commissioner Ms Elizabeth Tydd will commence in her role on 19 February 2024 and Privacy Commissioner Ms Carly Kind on 26 February 2024. The OAIC notes that these appointments are a significant and welcome step for the OAIC as it moves to a three-commissioner model.

Treasury 

14. RBA – The January 2024 Bulletin has been released: The RBA has released its January 2024 Bulletin providing a snapshot of key developments in the Australian monetary and payments system over the past quarter.

Key updates include:

• Post-pandemic Demand for Australia’s Banknotes: Banknote demand has declined by 5 percentage points since early 2020, while cash use in the shadow economy has increased slightly. This strength, relative to growth in prices and the economy, is despite the ongoing decline in the use of cash for day-to-day transactions over many years.
• Developments in Income and Consumption Across Household Groups: Growth in consumption has slowed significantly over the past year or so across most household groups as cost-of-living pressures have weighed on household finances. However, many of these households have lower financial buffers and the increased cost of living is more likely to have caused financial stress.
• Phasing out of the Committed Liquidity Facility: Following a 2019 review by the RBA, the Committed Liquidity Facility (CLF) was fully phased out in January 2023. The RBA provided the CLF from 2015–2022 as part of Australia’s implementation of the Basel III liquidity standard regulations. The RBA is satisfied that the banks have managed the transition away from the CLF smoothly and that their aggregate LCR remains well above minimum regulatory requirements. The banks, APRA and the RBA will however continue to closely review banks’ buffers against liquidity stress, including developments in markets for high-quality liquid assets.

ACCC 

15. ACCC guidance for CDR business consumers: The ACCC has released a Consumer Data Rights (CDR) fact sheet providing general guidance on how CDR business consumers, as distinguished from individual CDR consumers, can participate in the CDR regime and how the Competition and Consumer (Consumer Data Right) Rules 2020 (CDR Rules) applies to CDR business consumers. The release follows amendments made to the CDR Rules on 21 July 2023 by the Competition and Consumer (Consumer Data Right) Amendment Rules (No. 1) 2023 (Amending Rules).

Broadly, the Amending Rules provide CDR business consumers with greater choice in relation to sharing CDR data, with key changes as follows:

• Increased third-party data sharing: CDR business consumers may now consent to share their CDR data to a wider range of unaccredited third parties. These third parties can include bookkeepers, consultants and other advisers not classed as “trusted advisors” under the CDR Rules. This business consumer disclosure consent allows more business consumers, notably small businesses and the software vendors that supply to those businesses, to participate in the CDR regime.
• Extended maximum duration of business consumer use and disclosure consents: The maximum duration of a use or disclosure consent given by a CDR business consumed to an accredited data recipient (ADR), and which contains a business consumer statement, has been extended from 12 months to seven years. However, related collection consents for the CDR data in question (but which do not contain a business consumer statement) will nonetheless need to be renewed every 12 months, and shorter consent periods remain available to CDR business consumers.

ALRC

16. ALRC Report 141: Proposed Restructure and Consolidation of Australia’s Financial Services Law: The ALRC has published an extensive final report which sets out findings from its review of Australia’s current financial services legislation, along with recommendations for reform (Final Report).

At 362 pages and 58 recommendations, the Final Report sets out a comprehensive case for a drastic overhaul of the financial services regulatory architecture. In summary, the Final Report concludes that the existing legislative framework for corporations and financial services regulation is no longer fit for purpose, with particular emphasis on the interpretative complexity created by “notional amendments, conditional exemptions, and proliferating legislative instruments” – a sentiment any practitioner working with the framework can likely appreciate.

In order to address this complexity, the Final Report recommends a complete restructure of the financial services law into the following proposed framework:

• Restructured and reframed primary legislation containing the Financial Services Law, which would set out core obligations, offence provisions, rights, remedies, and definitions;
• A single “Scoping Order” setting out matters that adjust the scope of the framework, including exemptions and exclusions. This is proposed to be a separate legislative instrument; and
• A number of consolidated “Rulebooks”, which would contain prescriptive detail that tailors the framework for particular products, services, persons, or circumstances.

The ALRC has also published a how-to guide which provides a high-level breakdown of the reformed legislative framework as proposed in the Final Report.

The Final Report has arrived during a period of significant reform for Australia’s financial   services regime, with Treasury’s proposed Payment System Modernisation and Digital Asset Platform reform (among others) set to further expand and complicate the existing legislative framework. The proposed reforms are a significant undertaking and will take considerable time to implement. The changes will however be welcomed by many operating in the space if they can serve the stated objective of introducing some much-needed clarity to the financial services regulatory landscape.

Legislative Updates

17. The Parliamentary inquiry into insurers’ responses to major flooding in 2022 has scheduled its first round of public hearings: The House of Representatives Standing Committee on Economics is inquiring into matters relating to insurers’ responses to recent natural disasters in Australia. The inquiry will examine various aspects of insurance claim handling regulations and processes including:

• the different types of insurance contracts offered by insurers and held by policyholders;
• timeframes and obstacles to resolving claims;
• claimants’ and insurers’ experiences of internal dispute resolution processes.

The inquiry terms of reference also take into consideration insurer preparedness for future flood events.

Public hearings have been scheduled to take place between 31 January 2024 and 9 February 2024.

The committee is due to report by 30 September 2024.

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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
Fiona Ng, Lawyer