In this edition of Gilbert + Tobin’s Financial Services Regulation Newsletter, we focus on key legal developments over the last fortnight.
Contents
On the pulse
Attorney-General's Portfolio Miscellaneous Measures Bill 2023 passed by the Senate - see Bill .
Climate-related financial disclosure: Bill returned to House - see Bill .
Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 (Cth) - see Bill .
Proposed Financial Institutions Supervisory Levies for 2024-25 - see consultation .
ASIC: Market Integrity Update Issue 159: May 2024 - see update .
Speech: Three principles for better compliance - see speech .
APRA releases Monthly Authorised Deposit-taking Institution Statistics for April 2024 - see statistics .
Federal Court finds individual in contempt for breaching orders to stop unauthorised banking business - see media release .
APRA releases superannuation statistics for March 2024 - see statistics .
APRA applies additional licence conditions on Mercer Super - see media release .
AUSTRAC accepts Enforceable Undertaking from online betting company Sportsbet - see media release .
IOSCO advances Global Sustainability Disclosures Agenda with enhanced Capacity Building Initiatives - see media release .
Case Summary: Singtel Optus Pty Ltd v Robertson [2024] FCAFC 58 - see judgment .
Government introduces consumer protections for Buy Now Pay Later (BNPL) - see media release .
Senate Economics Legislation Committee, 2024-2025 Budget Estimates - see media release .
ASIC InFocus June 2024 - Volume 33 Issue 4 - see ASIC InFocus June 2024 .
Court finds Active Super made misleading ESG claims in a greenwashing action brought by ASIC - See ASIC media release .
APRA clarifies expectations on cyber security and adequacy of backups - see media release .
APRA releases response on Superannuation Promoter definition - see media release .
APRA has published further guidance on the Your Future, Your Super Performance Test - see media release .
APRA releases notes on Risk Governance roundtable hosted with ICA - May 2024 - see notes .
IOSCO publishes Good Practices to improve trading venues’ resilience in case of Market Outages - see media release .
IOSCO publishes Final Report on Leveraged Loans and CLOs Good Practices for Consideration - see media release .
AICD: Directors on notice for tax obligations - see media release .
Latest greenwashing case: ASIC v LGSS Pty Ltd [2024] FCA 587 - see judgment .
G+T Insight - Federal Court decision reinforces ASIC’s stance on greenwashing - Ilona Millar and Kelvin Ng (6 June 2024)
G+T Insight - Federal Court to Optus: No privilege for multi-purpose report - Peter Munro and David Baddeley (5 June 2024)
G+T Insight - UK AI regulation: ‘all eyes and no hands’? - Anna Smyth and Peter Waters (5 June 2024)
Australian Securities & Investments Commission (ASIC)
ASIC: Market Integrity Update Issue 159: May 2024
ASIC has published ASIC Market Integrity Update: Issue 159 (May 2024), which includes articles about:
Recent enforcement action taken by the Markets Disciplinary Panel;
Expanded guidance on the ASIC Market Integrity Rules (Securities Markets) 2017 and ASIC Market Integrity Rules (Capital) 2021 in relation to technological and operational resilience, including revisions to various ASIC regulatory guides;
Managing third-party cyber risk; and
Progress on the competition in clearing and settlement reforms.
See ASIC Market Integrity Update Issue 159 .
ASIC: New Professional Registers search
ASIC has announced that it is launching a new streamlined Professional Registers Search (PRS), due to be released in late June 2024.
The PRS will allow users to review and search all the professional registers databases with just one search.
See ASIC media release .
Speech: Three principles for better compliance
On 30 May 2024, ASIC Commissioner Simone Constant delivered a speech at the Australasian Investor Relations Association (AIRA) Annual Conference on regulatory changes affecting listed entities.
According to the Commissioner, compliance in this complex, evolving environment comes down to three basic principles: (a) transparency; (b) accountability; and (c) consistency.
The Commissioner also stated that ASIC is working to promote good governance in listed companies by ensuring confident and informed participation by investors and consumers.
See full speech here .
Senate Economics Legislation Committee, 2024-2025 Budget Estimates
ASIC Chair Joe Longo delivered the opening statement at the Senate Economics Legislation Committee during the 2024-2025 Budget Estimates. He welcomed the additional funding from the Federal Budget to ASIC and outlined key areas of focus for the funding, including stabilising business registers and advancing ASIC's digital transformation.
Mr Longo also outlined ASIC's role in supporting government initiatives, addressing financial hardship for vulnerable consumers, and enforcing regulations to protect consumers from misconduct. He provided examples of recent enforcement outcomes and emphasised ASIC's commitment to regulatory action. Additionally, Mr Longo acknowledged leadership changes within ASIC and expressed confidence in the agency's continued transformation.
See ASIC media release .
ASIC InFocus June 2024 - Volume 33 Issue 4
ASIC has released its June version of InFocus. Key alerts covered this month include:
ASIC Fee Indexation Update: As of July 1, 2024, ASIC will adjust certain fees in line with the Consumer Price Index (CPI ) increase. A recent update on the fees for commonly lodged documents is available, showcasing current versus indexed fees. For detailed information, visit ASIC's official website.
Launch of ASIC Professional Registers Search Beta: ASIC is set to unveil a trial version of its New Professional Registers Search by the end of the month. Stakeholders can test the beta site and contribute feedback. This new search will encompass AFS licensees, credit representatives, liquidators, auditors, and more. While the beta is in use, current searches will remain active on ASIC Connect.
Australia Post - Brisbane Address Verification Modification: Australia Post has implemented changes for the validation of Brisbane addresses with the postcode 4000, now requiring 'BRISBANE CITY, 4000' for all ASIC lodgement address entries. The former 'BRISBANE, 4000' formulation will now be rejected, and the correct entry is mandatory to avoid issues.
Resolution of Missing Payments: If payments made to ASIC are unaccounted for, it may be due to incorrect reference numbers or combined transactions. To resolve this,, submit an online inquiry with pertinent details like reference number, payment date, and proof of payment to reallocate funds to the correct account and remove any unwarranted late fees.
Company and Business Name Renewal Reminders: ASIC emphasises the importance of being cognisant of key dates such as business name renewals and company annual reviews to avoid late fees. ASIC sends reminders for these significant dates, which can also be verified on ASIC Connect. The annual review fee for companies is due within two months of their anniversary date, and renewal notices for business names are dispatched 30 days prior to their due date.
See ASIC InFocus June 2024 .
ASIC Key actions and proceedings
ASIC permanently bans Melbourne director from financial services and credit activities - ASIC has made two orders permanently banning Melbourne-based former director Christopher David Nairn from the financial services and credit industries. See ASIC media release.
Auditor and audit firm admit to independence failures - ASIC has accepted a court-enforceable undertaking from registered company auditor Robert Johnson and audit firm Hardwicke, based in Canberra. See ASIC media release .
ASIC suspends AFS licence of Aurora Funds Management Limited - ASIC has suspended the Australian financial services (AFS) licence of Aurora Funds Management Limited (Aurora) (AFSL 222110) until 20 September 2024. See ASIC media release.
ASIC disqualifies NSW director for five years - ASIC has disqualified Andrew Liam Parry of Wentworth Falls, NSW, from managing corporations for the maximum period of five years due to his involvement in the failure of four companies. See ASIC media release .
Former Queensland financial adviser Brett Gordon banned following fraud conviction - ASIC has permanently banned former Sunshine Coast financial adviser Brett Andrew Gordon from providing financial services and engaging in credit activities after he was convicted of fraud offences. See ASIC media release .
DanFX Trade former director Daniel Ali jailed for fraud - Daniel Farook Ali, former director of DanFX Trade Pty Ltd, has been sentenced in the Brisbane District Court to seven years and three months imprisonment for fraud, following an ASIC investigation. See ASIC media release .
ASIC cancels licence of Aussie Wealth Super Pty Ltd - ASIC has cancelled the Australian financial services (AFS) licence of Aussie Wealth Super Pty Ltd (Aussie Wealth Super) effective from 3 June 2024. See ASIC media release .
ASIC cancels AFS licence of retail OTC derivative issuer XTrade.AU Pty Limited - ASIC has cancelled the Australian financial services (AFS) licence of retail over the counter (OTC) derivatives issuer XTrade.AU Pty Ltd (XTrade). See ASIC media release .
Court finds Active Super made misleading ESG claims in a greenwashing action brought by ASIC - The Federal Court has found LGSS Pty Limited, as trustee of the superannuation fund Active Super (Active Super), contravened the law in connection with various misleading representations concerning its ESG credentials. See ASIC media release .
ASIC issues DDO stop order against Australian Unity Funds Management - ASIC has made an interim stop order preventing Australian Unity Funds Management Ltd (Australian Unity) from issuing or distributing interests in the Australian Unity Select Income Fund (Fund) to retail clients. See ASIC media release .
Court relieves Block Earner from liability to pay a penalty for offering unlicensed crypto-related product ‘Earner’ - The Federal Court has relieved Block Earner from liability to pay a penalty for contraventions related to unlicensed financial services when it offered its crypto-related Earner product. See ASIC media release .
Australian Prudential Regulation Authority (APRA)
APRA releases Monthly Authorised Deposit-taking Institution Statistics for April 2024
APRA has released its Monthly Authorised Deposit-taking Institution Statistics (MADIS) publication for April 2024.
Copies of the April 2024 monthly publication are available on the APRA website at: Monthly Authorised Deposit-taking Institution Statistics publication .
Banking
Federal Court finds individual in contempt for breaching orders to stop unauthorised banking business
The Federal Court has found an individual in contempt of court for failing to comply with orders made against him following legal action by APRA.
APRA sought an injunction in July last year to stop Andrew Morton Garrett from carrying on unauthorised banking business. Mr Garrett’s purported businesses include Dynamic Capital Bank, Banque de Capital Dynamique, and Banca di Como.
On 14 August 2023, the court made orders with immediate effect permanently restraining Mr Garrett from carrying on a banking business or using the word ‘bank’.
APRA filed proceedings for contempt on 21 September 2023 alleging Mr Garrett breached these orders by continuing to operate and market these businesses in Australia that he describes as banks, despite not being authorised to carry on a banking business.
In his judgment, handed down on 3 May 2024, Justice Lee backed APRA’s application by finding Mr Garrett in contempt of court. The court also ordered Mr Garett to pay a fine of $10,000 to be suspended for 18 months, conditional on compliance with the orders.
This latest legal action underlines APRA’s determination to protect Australians from mistakenly believing they are depositing money with an APRA-regulated institution and receiving the same protection.
See APRA media release .
Superannuation
APRA releases superannuation statistics for March 2024
APRA has released its Quarterly Superannuation Performance publication and the Quarterly MySuper Statistics report for the March 2024 quarter. Key statistics for the superannuation industry as of 31 March 2024:
| March 2023 | March 2024 | Change | |
| Total contributions | $159.0 billion | $177.0 billion | +11.3% |
| Total benefit payments | $95.6 billion | $112.9 billion | +18.1% |
| Net contribution flows* | $62.3 billion | $59.8 billion | -3.9% |
The growth in total superannuation assets for the year ending in March 2024 was driven by continued strong contribution inflows and a 10.9 per cent rate of return. Total superannuation assets increased by 4.2 per cent in the March 2024 quarter, driven by a 4.9 per cent rate of return for APRA-regulated assets over the quarter.
Total contributions increased by 11.3 per cent to $177.0 billion in the year ending in March 2024. Of this, employer contributions increased by 12.4 per cent over the year to $133.3 billion. Member contributions increased by 8.2 per cent over the year to $43.7 billion.
Benefit payments increased by 18.1 per cent to $112.9 billion in the year ending in March 2024. This increase was the result of lump sum payments rising by 18.4 per cent to $63.0 billion and pension payments increasing by 17.7 per cent to $49.8 billion.
Key statistics for entities with more than six members for the four quarters to March 2024:
*Net contribution flows comprise of contributions plus net benefit transfers, less benefit payments.
Copies of the publication are available on APRA’s website at: Quarterly superannuation statistics .
APRA applies additional licence conditions on Mercer Super
APRA has imposed additional licence conditions on Mercer Superannuation (Australia) Limited (Mercer Super) to ensure it addresses risk management and compliance management deficiencies identified by APRA.
Mercer Super is the trustee of Mercer Super Trust and Mercer Portfolio Service Superannuation Plan, which has approximately 850,000 members and over $70 billion in funds under management.
The risk management and compliance management deficiencies were identified as part of APRA’s ongoing prudential supervision of the trustee, which included a prudential review conducted in October 2023.
Mercer Super has subsequently acknowledged significant breaches of prudential standards SPS 220 Risk Management (SPS 220), SPS 231 Outsourcing (SPS 231) and SPS 232 Business Continuity Management (SPS 232).
Under the terms of the new licence conditions, which came into force on 27 May 2024, Mercer Super must:
develop and implement a remediation plan in conjunction with an independent expert that addresses the deficiencies identified by APRA;
appoint an independent third party to complete an operational effectiveness review of Mercer Super’s risk management and compliance frameworks, following the completion of the remediation plan; and
develop a plan to remedy any deficiencies identified in the operational effectiveness review.
On completion of the operational effectiveness review, Mercer Super is required to provide APRA with an attestation from the Trustee Chair, that the remediation actions are complete and effective, and that the entity is compliant with prudential standards SPS 220, SPS 231, and SPS 232.
See APRA media release .
APRA clarifies expectations on cyber security and adequacy of backups
APRA has written to all APRA-regulated entities emphasising the critical role of data backups in cyber resilience. This communication is part of APRA's ongoing commitment to supervising cyber resilience across the industry, as outlined in its Interim Policy and Supervision Priorities update.
The letter details the common issues observed in backup practices that could hinder system restoration during an incident. APRA expects regulated entities to review their backup arrangements and address any identified gaps promptly.
The letter is available on the APRA website at: Security and adequacy of backups .
Opening Statement to Senate Economics Legislation Committee - June 2024
APRA Chair John Lonsdale updated the Senate Economics Legislation Committee on APRA's efforts to maintain financial stability in Australia. He reassured that the financial system remains stable due to sound regulatory settings. APRA is monitoring risks such as geopolitical issues, high inflation, and elevated mortgage interest rates, and focusing on prudent lending practices and bank resilience.
Key points include:
Financial Environment: Non-performing housing loans and borrowers in financial hardship are increasing, but many maintain prepayment buffers.
Insurance: APRA is addressing pressures on household insurance affordability, especially due to natural disasters.
Regulatory Reforms: The Financial Accountability Regime (FAR) commenced for ADIs and will extend to insurance and superannuation next year to improve risk governance.
Cybersecurity: APRA reviewed compliance with the CPS 234 Information Security standard, enhancing cyber defences and data privacy. The new CPS 230 Operational Risk Management standard will come into effect on 1 July 2025.
Climate Risks: APRA is surveying entities on their climate risk management practices.
Superannuation: APRA is improving transparency and accountability in the superannuation sector, with results of the 2024 performance test and detailed performance metrics to be published soon.
Regulatory Initiatives: APRA supports the Government's regulatory initiatives grid and will launch a digital Prudential Handbook and update its Corporate Plan.
See APRA media release .
APRA releases response on Superannuation Promoter definition
APRA has released its response to the consultation on the proposed updates to the ‘promoter’ definition under Reporting Standard SRS 101.0 Definitions for superannuation data collections.
The consultation response is available on the APRA website at: Phase 1 Breadth .
APRA has published further guidance on the Your Future, Your Super Performance Test
APRA has issued a set of new and updated frequently asked questions to provide further guidance on the administration of the Government’s Your Future, Your Super Performance Test. The new FAQs released will provide clarification on the treatment of ‘Not Specified’ and ‘Not Applicable’ domicile type and listing type reporting; treatment of Separately Managed Accounts; and benchmark representative administration fees and expenses in the 12 months to March 2024.
The FAQs are available on the APRA website at: Your Future, Your Super Frequently Asked Questions .
APRA fines Equity Trustees for failing to meet data reporting requirements
APRA has fined Equity Trustees Superannuation Limited (ETSL) $782,500 for failing to meet its legal obligations to report data to APRA. ETSL breached the requirements of the Financial Sector (Collection of Data) Act 2001 (FSCODA) by failing to report data by the required deadlines for two funds under its trusteeship, AMG Super and Super Simplifier. ETSL lodged nine reporting forms 50 days late for AMG Super and six reporting forms 38 days late for Super Simplifier for the quarter ended 30 September 2023.
See APRA media release .
Insurance
APRA releases notes on Risk Governance roundtable hosted with ICA - May 2024
APRA and the Insurance Council of Australia on 13 May 2024 hosted a roundtable focused on risk governance. The notes can be found on the APRA website at: APRA and the Insurance Council of Australia host Roundtable on Risk Governance - May 2024 .
Australian Transaction Reports and Analysis Centre (AUSTRAC)
AUSTRAC accepts Enforceable Undertaking from online betting company Sportsbet
AUSTRAC has accepted an Enforceable Undertaking from Sportsbet Pty Ltd (Sportsbet) to uplift its compliance with Australia’s AML/CTF laws.
After an extensive supervisory campaign assessing entities within the corporate bookmaker sector, AUSTRAC ordered Sportsbet to appoint an external auditor to examine its compliance with the AML/CTF regime. Following careful consideration of the auditor’s findings, and Sportsbet’s willingness to cooperate and proactively work to meet its obligations, AUSTRAC has determined to accept an Enforceable Undertaking as being the most appropriate regulatory response.
The enforceable undertaking binds Sportsbet to an ongoing remedial action plan to improve its AML/CTF program, which AUSTRAC will monitor to ensure it is undertaken within the agreed timeframes. As part of the undertaking, Sportsbet is also required to provide reports to AUSTRAC from an auditor who will continually monitor the progress of Sportsbet’s uplift.
AUSTRAC CEO Brendan Thomas said that the enforceable undertaking is designed to help prevent Sportsbet from becoming a place where criminals can funnel their illicit funds.
See AUSTRAC media release .
New guidance released to help combat the use of foreign students as money mules
On 4 June 2024, AUSTRAC released a new financial crime guide to help businesses identify and report suspicious activity related to criminal networks targeting vulnerable international students and temporary residents as money mules.
The guide draws on intelligence collected and analysed through Fintel Alliance and by the Australian Federal Police and the Australian Border Force. It provides practical advice to businesses on what to look out for, and when they should report to AUSTRAC.
Businesses should use a combination of the indicators in this new guide and their own transaction monitoring to identify suspected money mule accounts, and report their concerns to AUSTRAC by submitting a suspicious matter report.
Read the financial crime guide on the AUSTRAC website, under Guidance resources .
See AUSTRAC media release .
AUSTRAC Key actions and proceedings:
SkyCity ordered to pay $67 million penalty for AML/CTF breaches - SkyCity Adelaide Pty Ltd has been ordered by the Federal Court of Australia to pay a $67 million penalty after AUSTRAC launched civil penalty proceedings against it for breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 . The Court also ordered SkyCity to pay AUSTRAC’s costs at $3 million.
See AUSTRAC media release .
Other regulators
International Organization of Securities Commissions (IOSCO) advances Global Sustainability Disclosures Agenda with enhanced Capacity Building Initiatives
Meeting the challenges of consistent sustainability disclosures was a key topic at IOSCO’s Presidents Committee Meeting, attended by representatives from all 130 member jurisdictions.
Jean-Paul Servais, Chair of IOSCO’s Board, commented: ‘It is encouraging that over the past year, we have seen several jurisdictions take regulatory initiatives in line with IOSCO’s endorsement of the ISSB Standards. Yet, we recognise that this journey may be challenging, particularly for many emerging markets that will require the most assistance as they consider implementing sustainability reporting standards. To build awareness and understanding, IOSCO has strengthened its collaboration with the ISSB and initiated a new partnership with the World Bank to assist jurisdictions as they consider their pathways to adoption.’
See IOSCO media release .
IOSCO publishes Good Practices to improve trading venues’ resilience in case of Market Outages
On 5 June 2024, IOSCO published its final report on Market Outages.
The final report addresses the need for improved preparedness and management of market outages to ensure market resilience and investor confidence.
It identifies key findings from recent market outages. It sets forth five good practices to assist regulators, trading venues and market participants in preparing for, and managing, future market outages and thereby helping improve market-wide resilience.
See IOSCO media release .
IOSCO publishes Final Report on Leveraged Loans and CLOs Good Practices for Consideration
On 3 June 2024, IOSCO published its Final Report: Leveraged Loans and Collateralised Loan Obligations (CLOs) Good Practices for Consideration .
IOSCO has been following the evolution of the Leveraged Loans and CLO markets, including significant shifts in market practices that emerged during the ‘low-for-long’ interest rate environment. In its analysis IOSCO has focussed on examining the impact of fewer and looser covenants on investor protections, whether there is adequate transparency in these markets and the scope for potential conduct-related issues to arise.
The Final Report describes in detail 12 Good Practices which are designed to support market participants in their decision-making when operating in these markets, and which are grouped into five themes:
Origination and refinancing based on a sound business premise;
EBITDA and loan documentation transparency;
Strengthening alignment of interest from loan origination to end investors;
Addressing the interests of different market participants throughout the intermediation chain; and
Disclosure of information on an ongoing basis.
See IOSCO media release .
Australian Institute of Company Directors (AICD): Directors on notice for tax obligations
The ATO has warned that directors must ensure the tax obligations of their organisations are being met and understand their liability for penalty notices.
The ATO paused most firmer debt collection actions (such as garnishee notices or wind-up applications) during the pandemic. While this was necessary to help businesses navigate a difficult time, it also had an impact on payment culture. An increasing number of businesses chose not to pay tax in full or on time.
"We have now returned to business-as-usual debt recovery operations and expect all businesses that can pay, to pay — in full and on time."
The ATO prefers to work with taxpayers to resolve their situation through engagement rather than enforcement. But it is also the ATO’s responsibility to ensure a level playing field and support those who are doing the right thing, while taking strong action to deal with those who are not prioritising their tax obligations and refusing to pay their overdue tax and superannuation debts.
"We use a range of targeted strategies to address the growth in debt, which is now approximately $50b. This includes actions such as issuing a director penalty notice (DPN) to company directors."
See AICD media release .
Corporate cases
Singtel Optus Pty Ltd v Robertson [2024] FCAFC 58
On 27 May 2024, the Full Federal Court handed down its decision in Singtel Optus Pty Ltd v Robertson [2024] FCAFC 58 , dismissing the appeal brought by Singtel Optus Pty Ltd of the Federal Court’s finding that a report produced by Deloitte (Deloitte Report) following the cyberattack on Singtel Optus Pty Ltd and its related entities (Optus) was not protected by legal professional privilege (LPP).
Gilbert + Tobin’s article on the prior Federal Court decision, being Robertson v Singtel Optus Pty Ltd [2023] FCA 1392 , may be accessed here .
The Full Court dismissed the application by Optus for leave to appeal, concluding the primary judge was correct to find on the evidence that:
there were multiple purposes for which the Deloitte Report was commissioned, i.e. for a legal or litigation purpose, for finding the root cause of the cyberattack and more generally for reviewing Optus’ management of the cyber risk in relation to making changes to its policies and processes; and
the evidence did not establish that the Deloitte Report was procured for the dominant purpose of obtaining legal advice or for use in litigation or regulatory proceedings. Although one of the purposes for commissioning the Deloitte Report was to assist in obtaining legal advice, this was not the dominant purpose.
The Full Court noted that the unchallenged affidavit of Optus’ General Counsel and Company Secretary, Mr Kusalic, supported a legal purpose but was vague in proving that the Deloitte Report was created for the dominant purpose of obtaining legal advice.
What’s next
As a consequence of the Full Court’s decision, the information in the Deloitte Report will be provided to the law firm pursuing a class action against Optus alleging it failed to protect its customers’ personal information.
This decision comes days after ACMA commenced its own proceedings against Optus in relation to the cyberattack (see ACMA media release here).
Takeaways
This decision reinforces that:
Whether an incident investigation report is protected by LPP will depend on whether the report was prepared for the dominant purpose of legal advice;
Where there are multiple purposes for the creation of a document (such as a review of processes), it is unlikely to satisfy the dominant purpose test critical to a claim of LPP;
The dominant legal purpose must be demonstrated at the time an external consultant is engaged and the investigation commences;
Contemporaneous documents, including media releases and board resolutions, may be important in establishing the relevant purpose;
Corporations should be careful when making public statements about investigations, including by considering whether those statements will be consistent with the privileged purpose; and
Corporations should also be careful in planning strategic communications and legal risk management when dealing with sensitive data.
See our related G+T Insight article for further information.
Latest greenwashing case: ASIC v LGSS Pty Ltd [2024] FCA 587
On 5 June 2024, Justice O’Callaghan of the Federal Court handed down his judgement finding that LGSS Pty Limited, as trustee of the superannuation fund Active Super, contravened the law in connection with various misleading representations concerning its environmental, social and governance (ESG) credentials.
See ASIC v LGSS Pty Ltd [2024] FCA 587 .
ASIC has also published a media release summarising the decision.
Active Super claimed in its marketing that it eliminated investments that posed too great a risk to the environment and the community, including gambling, coal mining and oil tar sands. Following the invasion of Ukraine, Active Super also made representations that Russian investments were ‘out’.
However, the Federal Court found that from 1 February 2021 to 30 June 2023, Active Super invested in various securities that it had claimed were eliminated or restricted by ESG investment screens, including:
SkyCity Entertainment Group Ltd and Pointsbet Holdings Ltd (Gambling);
Gazprom PJSC and Sberbank of Russia (Russian entities);
ConocoPhillips and Shell Plc (Oil tar sands); and
Whitehaven Coal Limited and Coronado Global Resources (Coal mining).
These securities were held by Active Super both directly and indirectly (via managed funds or ETFs).
His Honour rejected Active Super’s claims that an ordinary or reasonable consumer would draw a distinction between holding shares in a company and indirect exposures through a pooled fund and stated that:
‘It seems to me that such a consumer would not draw that distinction, including in particular because there is nothing in the Impact Reports or on the LGSS website that suggests that the claims that there was, for example, ‘No way’ Active Super would invest members funds in gambling, tobacco and so on, was to be read subject to a proviso that there was a way in which it would do exactly that, by investing indirectly, not directly. In my view, that distinction is one which no ordinary reasonable consumer would draw.’
His Honour also found that the use of terms such as ‘not invest’, ‘No Way’ and ‘eliminate’ was unequivocal and not the subject of any potential qualifications by LGSS’s ‘Sustainable and Responsible Investment Policy’. In his judgment, Justice O’Callaghan stated:
‘If such a consumer was told, as they were told, that there was ‘No way’ that LGSS would invest in tobacco or gambling, he or she would not search around for some investment policy that might qualify such statements. Absent some indicator on the face it, such as a footnote or asterisk with some accompanying statement that the apparently unqualified language was, in fact, something that was subject to qualifications or limitations, they would have no reason to.’
However, the Court found that Active Super did not engage in misleading representations in relation to its holdings in companies involved in the production of packaging used for tobacco products, and that specific representations in its Sustainable and Responsible Investment Policy were not misleading with respect to Russian or oil tar sands investments (although the remaining representations alleged by ASIC were upheld).
ASIC Deputy Chair Sarah Court said, ‘This is a significant outcome which shows our commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry. ASIC took this case because it sends a strong message to companies making sustainable investment claims that they need to reflect their true position.’
The matter has been listed for a further hearing at which the Court will consider the appropriate form of declaratory relief. The Court will consider the pecuniary penalty to impose for the conduct at a later date.
See also related G+T Insight article by our ESG team.
Legislation and proposed legislation
Attorney-General's Portfolio Miscellaneous Measures Bill 2023 passed by the Senate
On 28 May 2024, the Attorney-General's Portfolio Miscellaneous Measures Bill 2023 (Cth) (AG Miscellaneous Measures Bill) was passed by the Senate. Most of its provisions commence the day after Royal Assent is given.
The AG Miscellaneous Measures Bill will, among other things, confer jurisdiction on the Federal Court of Australia to hear and determine a range of summary and indictable offences relating to conduct within the regulatory remit of ASIC. This new jurisdiction will be additional to the Federal Court's existing criminal jurisdiction for cartel offences under the Competition and Consumer Act 2010 (Cth) and in relation to a number of civil penalty provisions under the Australian Securities and Investments Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth) .
The new jurisdiction of the Federal Court will operate concurrently with the existing jurisdiction of state and territory courts in relation to these offences. The AG Miscellaneous Measures Bill makes no changes to the jurisdiction of state and territory courts and provides for proceedings in relation to corporate crime offences to be transferred to the most appropriate court by the first court, having regard to the interests of justice.
For further information, see Bill here and its Explanatory Memorandum here .
Climate-related financial disclosure: Bill returned to House
On 28 May 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) was referred to the House of Representatives for further consideration after having been referred to the Federation Chamber on 15 May 2024. The Bill will implement standardised, internationally aligned requirements for mandatory disclosure of climate-related risks and opportunities in Australia.
For further information, see Bill here and its Explanatory Memorandum .
Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 (Cth)
A Bill for an Act to amend the law relating to taxation, financial services and corporations, and for related purposes. It includes amendments to the Corporations Act 2001 (Cth) to reinstate the Australian Financial Complaint Authority’s jurisdiction to hear certain complaints relating to superannuation.
For further information, see Bill here and its Explanatory Memorandum .
Proposed Financial Institutions Supervisory Levies for 2024-25
This paper , prepared in conjunction with APRA, seeks submissions on the proposed financial institutions supervisory levies for the 2024-25 financial year.
The financial industry levies are set to recover the operational costs of APRA and other specific costs incurred by certain Commonwealth agencies, including Treasury and the ATO.
You can submit responses to this consultation up until 11 June 2024. Interested parties are invited to comment on this consultation.
See Treasury Consultation .
Government introduces consumer protections for Buy Now Pay Later (BNPL)
On 5 June 2024, the Government introduced Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , being new consumer protection legislation for Buy Now Pay Later (BNPL) that will see BNPL operators regulated as consumer credit.
Most BNPL products are not currently covered by the National Consumer Credit Act (Credit Act) meaning these providers are not subject to the same consumer protections such as affordability checks that apply to other forms of credit such as credit cards and loans.
When consumers do get into trouble, they might not have access to effective dispute resolution and hardship processes.
The new legislation will:
amend the Credit Act to require BNPL providers to hold an Australian credit licence;
mean operators will need to comply with existing credit laws, regulated by ASIC; and
establish a new category of ‘low cost credit contract’ under the Credit Act, to reflect the lower risk and cost of BNPL compared with other regulated forms of credit.
BNPL providers will still need to consider whether a product is suitable and affordable for consumers, although the steps that providers need to take in making these assessments are anticipated to be fewer compared to other forms of regulated credit.
The government recognises the competition BNPL has introduced into credit markets, allowing consumers access to small amounts of credit and the sectors contribution to the broader economy.
See Treasury media release .
G+T Articles
G+T Insight - UK AI regulation: ‘all eyes and no hands’? - explores the UK Government’s response to feedback on its 2023 White Paper on AI regulation, proposing a decentralised, sector-specific approach without new legislation, while a Conservative peer has introduced a bill to establish a statutory AI Authority to address gaps in AI-specific regulatory powers, reflecting a divergence from the EU's more stringent AI Act - Anna Smyth and Peter Waters (5 June 2024)
G+T Insight - The long arm of US AI regulation reaches through the cloud - reviews the proposed US regulation of non-US parties training AI models on cloud platforms of US-based providers (Infrastructure as a Service or IaaS providers) - Peter Waters (3 June 2024)
G+T Insight - Federal Court decision reinforces ASIC’s stance on greenwashing - discusses a recent decision by the Federal Court finding LGSS Pty Ltd, trustee of Active Super, liable for making false or misleading representations about its ESG credentials, marking the second successful case by ASIC against greenwashing, highlighting the need for accuracy and transparency in sustainable investment claims amid increasing regulatory scrutiny globally - Ilona Millar and Kelvin Ng (6 June 2024)
G+T Insight - Federal Court to Optus: No privilege for multi-purpose report - discusses a recent decision by the Full Court of the Federal Court of Australia regarding legal professional privilege, affirming that a forensic investigation report by Deloitte for Optus following a cyber-attack was not privileged due to its multiple purposes, offering insights into the principles of privilege, the dominant purpose test, and the evidence required in corporate contexts to establish the primary purpose of a document's creation - Peter Munro and David Baddeley (5 June 2024)
Calendar dates
28 June 2024 - Final report due in the Senate inquiry into greenwashing
30 June 2024 - Report due regarding the inquiry into ASIC’s capacity and capability to respond to reports of alleged misconduct
1 July 2024 - New Commonwealth Fraud and Corruption Control Framework will come into effect
1 October 2024 - Report on the independent review of Australia’s credit reporting framework due
1 January 2025 - Mandatory climate-related financial disclosures for Group 1 entities proposed to apply in respect of financial years started on or after this date
15 March 2025 - Financial Accountability Regime takes effect for superannuation and insurance bodies