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
ASIC issues first final stop order under the Design and Distribution Obligations - see media release .
ASIC - No action position on financial reporting obligations of special purpose financing subsidiaries and their guarantors - see media release .
ASIC - start preparing now for mandatory climate reporting - see speech .
ASIC releases March 2024 financial adviser exam results - see media release .
Regulatory Tracker: INFO 204 Recovery of investigation expenses and costs - see media release .
APRA publishes new and updated FAQs on Superannuation Data Transformation - see media release .
APRA and ASIC publish latest data on life insurance claims and disputes - December 2023 - see statistics .
APRA and ASIC release notes on Superannuation CEO Roundtables - March 2024 - see media release .
APRA consults on enhancements to quarterly insurance publication suite - see media release .
AUSTRAC issues businesses with infringement notices for failing to comply with their reporting obligations - see media release .
AICD: Business, finance and both retail and institutional investors in Australia align to support climate-related disclosures - see media release .
Adam Blumenthal ordered to pay $850,000 and disqualified for five years for market rigging and directors’ duties breaches: Australian Securities and Investments Commission v Blumenthal [2024] FCA 384
G+T Insight - Not so glad to be green: ACCC commences first Federal Court case on greenwashing - Simon Muys (19 January 2024)
ASIC
ASIC issues first final stop order under the Design and Distribution Obligations
ASIC has ordered that Coral Coast Distributors (Cairns) Pty Ltd (Coral Coast) can no longer sign up customers into Centrepay credit arrangements in its Urban Rampage stores. ASIC found that the credit arrangements were unsuitable for consumers in Coral Coast’s target market because they were unlikely to be consistent with their financial situation and placed them at risk of financial hardship.
Coral Coast offers a credit facility which involves repayments for goods purchased at Urban Rampage stores by deductions from customers’ Centrelink benefits via Centrepay (deferred deduction arrangements). Coral Coast operates 10 Urban Rampage stores in regional and remote locations across Western Australia, the Northern Territory and Queensland, selling household items.
ASIC Commissioner Alan Kirkland stated, “This is ASIC’s first final stop order under the design and distribution obligations regime. Coral Coast targeted First Nations consumers who received Centrelink payments. After entering into Centrepay credit arrangements at Urban Rampage stores, many of these consumers found themselves without money to pay for essentials. It is unacceptable for businesses to use credit-like facilities in a way that places vulnerable customers into hardship.”
ASIC issued an interim stop order on 22 February 2024 which was initially in place for 21 days. The interim stop order was extended and ASIC made the final stop order on 24 April 2024.
See ASIC media release .
No action position on financial reporting obligations of special purpose financing subsidiaries and their guarantors
On 23 April 2024, ASIC announced that it has adopted a no-action position on the financial reporting obligations of special purpose financing subsidiaries, or other wholly owned subsidiaries, that issue debentures to sophisticated or professional investors, and their guarantors, that may have been relying on relief under ASIC Corporations (Wholly-Owned Companies) Instrument 2016/785 (Instrument 2016/785).
Instrument 2016/785 relieves certain wholly-owned companies from their financial reporting obligations under the Corporations Act 2001 (Cth) when they meet certain conditions. However, wholly owned companies that are borrowers in relation to debentures, or a guarantor of such a borrower, are excluded from relief under Instrument 2016/785.
ASIC has taken this no-action position after having been made aware that some corporate groups with special purpose financing subsidiaries or other wholly owned subsidiaries, that issue debentures to sophisticated or professional investors for the purpose of providing finance to other companies in the group, may have been of the view that the exclusions do not apply to their special purpose financing vehicle or any of its guarantors. ASIC states that its no-action position means that ASIC will not take enforcement against such entities for not preparing and lodging annual reports where they otherwise comply with the requirements of Instrument 2016/785.
The no-action position will remain in place until 1 October 2026 or earlier if ASIC decides to remake the relief after consulting with the industry.
For more information, see ASIC Media Release: No-action position on financial reporting obligations of special purpose financing subsidiaries and their guarantors (23 April 2024) .
Start preparing now for mandatory climate reporting
On 22 April 2024, ASIC Chair Joe Longo in a keynote speech to the Deakin Law School International Sustainability Reporting Forum outlined the approach ASIC will take to administering the climate-related disclosure regime proposed by the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth).
Mr Longo urged companies who will be required to report from 1 January 2025 to begin putting in place the required systems, processes and governance practices.
Other key points from Mr Longo's speech include that:
ASIC will, as with any new regulatory regime, take a pragmatic approach to the supervision and enforcement of the climate reporting regime.
ASIC continues to encourage listed companies to report voluntarily under the recommendations of the Financial Stability Board's Taskforce on Climate-related Financial Disclosures. ASIC also encourages entities to start developing the necessary organisational and governance structures to support future reporting requirements, including any additional sustainability-related topics that may be introduced in future years.
ASIC will develop and issue regulatory guidance on climate-related financial disclosures. This will include:
a new regulatory guide for the climate reporting regime which will address ASIC's approach to relief from those obligations and the interaction of the regime with existing legal and regulatory requirements; and
resources on ASIC's website for both those who prepare and use sustainability reports, including information on the new sustainability reporting obligations, ASIC's regulatory functions in relation to the regime, and the types of information found in sustainability reports.
See the transcript of the speech here .
ASIC releases March 2024 financial adviser exam results
On 26 April 2024, ASIC released the exam results from the 24th Financial Advisers Exam cycle, held in March 2024. This is the first exam to reflect the amendments in the Corporations (Relevant Providers—Education and Training Standards) Amendment (2024) Measures No. 1) Determination 2024.
The exam, conducted by the Australian Council for Educational Research (ACER) since inception, follows a rigorous process to ensure all candidates in each cycle are tested to the same standards.
In the March exam cycle:
298 people sat the exam;
70% (210) passed the exam; and
77% (230) sat the exam for the first time.
As has been the practice for previous cycles, unsuccessful candidates will receive general feedback from ACER on the areas they underperformed.
See ASIC media release .
Regulatory Tracker: INFO 204 Recovery of investigation expenses and costs
ASIC Information Sheet 204 (INFO 204) explains ASIC’s powers to make order to recovery the expenses and costs of investigations ASIC conducts. The latest amendments to INFO 204 include clarification on ASIC’s expectations around the timing of the notification of an investigation costs order.
See ASIC media release .
ASIC key actions and proceedings:
Former Victorian director charged with breaching his director duties and making false statements to ASIC
Benjamin Thomas Molloy appeared at the Melbourne Magistrates Court charged with one count of breaching his duties as a director pursuant to section 184(2)(a) of the Corporations Act 2001 (Cth) and five counts of making false statements to ASIC pursuant to section 1308(2) of the Corporations Act 2001 (Cth). See ASIC media release .
ASIC cancels AFS licence of JB Markets
ASIC has cancelled the Australian Financial Services (AFS) licence of JB Markets Pty Ltd (JB Markets) effective from 12 April 2024, for failing to comply with the financial requirements of its AFS licence and failing to have adequate resources to provide the financial services covered by the licence and to carry out supervisory arrangements. See ASIC media release .
Macquarie Bank to pay $10 million for failure to properly monitor system for third-party fee withdrawals from customer accounts
The Federal Court has ordered Macquarie Bank Ltd to pay a penalty of $10 million for failing to have effective controls to prevent and detect unauthorised fee transactions conducted by third parties, such as financial advisers, on customer cash management accounts using Macquarie’s bulk transacting facility. See ASIC media release .
Adam Blumenthal ordered to pay $850,000 and disqualified for five years for market rigging and directors’ duties breaches
The Federal Court has ordered Adam Blumenthal, former director of EverBlu Capital Pty Ltd (EverBlu) and Creso Pharma Limited (now known as Melodiol Global Health Limited) (Creso), to pay a penalty of $850,000 and be disqualified from managing corporations for five years following action brought by ASIC. See ASIC media release and summary in corporate cases below.
APRA
APRA and ASIC release notes on Superannuation CEO Roundtables - March 2024
APRA and ASIC released the public notes on the Superannuation CEO Roundtables held on Wednesday 27 March and Thursday 28 March 2024.
The Roundtables were hosted by APRA Executive Director Carmen Beverley-Smith and ASIC Commissioner Simone Constant. They were attended by 20 superannuation trustee Chief Executive Officers and other executives, representing a broad cross-section of the industry.
The notes can be found on the APRA website: APRA and ASIC host Superannuation CEO Roundtables - March 2024 .
APRA publishes new and updated FAQs on Superannuation Data Transformation
APRA published four new frequently asked questions (FAQs), updated one and archived 18 FAQs for the Superannuation Data Transformation (SDT) project.
The SDT FAQs are available on the APRA website: Frequently Asked Questions - Superannuation Data Transformation.
APRA consults on enhancements to quarterly insurance publication suite
APRA has released a consultation on proposed enhancements to the content and presentation of its suite of quarterly insurance statistical publications.
The consultation paper along with the proposed content and presentation of the quarterly insurance publications are available on the APRA website: Enhancements to insurance statistical publications .
APRA and ASIC publish latest data on life insurance claims and disputes - December 2023
On 16 April 2024, APRA released its Life Insurance Claims and Disputes Statistics publication, covering a rolling 12-month period from 1 January 2023 to 31 December 2023.
APRA’s Life Insurance Claims and Disputes Statistics publication presents the key industry and entity-level claims and disputes outcomes for 17 Australian life insurers writing direct business (i.e. excluding reinsurance).
ASIC’s MoneySmart life insurance claims comparison tool has been updated with the latest data. The online tool compares insurers across cover types and distribution channels on four metrics: (1) the percentage of claims accepted; (2) the length of time taken to pay claims; (3) the number of disputes; and (4) the policy cancellation rates.
This publication is available on the APRA website: life insurance claims and disputes statistics .
AUSTRAC
AUSTRAC issues businesses with infringement notices for failing to comply with their reporting obligations
AUSTRAC has issued eight infringement notices for reporting failures under the Anti-Money Laundering and Counter-Terrorism Funding Act 2006 (AML/CTF Act).
AUSTRAC’s infringement notices were issued to businesses and sole traders across a wide range of industry sectors including pubs and clubs, non-bank lenders, bookmakers, financial services providers, and trustees. The businesses received initial infringement notices ranging from $3,300 for sole traders to $16,500 for companies for each contravention.
The infringement notices were issued due to the failure to report the required 2022 annual compliance report. While most of the 17,000 businesses AUSTRAC regulates submitted their compliance reports, AUSTRAC CEO Brendan Thomas has stated that the use of enforcement measures to ensure submission of these reports is part of safeguarding Australian communities from serious crime.
Mr. Thomas emphasised the importance of Australia's AML/CTF regime, particularly in ensuring that AUSTRAC receives necessary information from businesses. He highlighted that criminals and terrorists often exploit businesses with inadequate AML measures, underscoring the necessity of ongoing industry engagement. Mr. Thomas stated that the annual compliance report aids AUSTRAC in evaluating financial services providers' adherence to regulations and pinpointing potential vulnerabilities in Australia’s financial system.
AUSTRAC will continue to monitor compliance with reporting obligations and will not hesitate to take appropriate enforcement action where businesses fail to submit their annual compliance report.
Find out more about the consequences of not complying . A full list of the eight businesses that have been issued an infringement notice is available on the AUSTRAC website .
See AUSTRAC media release .
Other bodies and regulators
AICD: Business, finance and both retail and institutional investors in Australia align to support climate-related disclosures
Organisations representing business, finance and both retail and institutional investors in Australia align to support climate-related disclosures bill passage.
15 of Australia’s most influential organisations representing business, finance and both retail and institutional investors and shareholders have come together to support the passage of Schedule 4 of the Federal Government’s Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (the Bill).
Together, the group represent more than 900 companies, investors with over AU$80 trillion assets under management, 7.7 million retail shareholders and over 80,000 directors, senior executives, accountants and other business professionals.
To maintain Australia’s place in the global economy, the group considers it’s essential there is a climate reporting framework that incentivises high quality, useful, and internationally aligned climate-related disclosures.
The inaugural National Climate Risk Assessment identified 56 nationally significant climate risks, including a cross-cutting systemic risk to the real economy from acute and chronic climate change impacts, climate-related financial system shocks and volatility. Clear and comparable disclosure of climate-related financial information will help identify and understand the large-scale financial risks from the impacts of climate change and a disorderly transition to net zero emissions and encourage action to mitigate these risks.
The group supports the alignment of climate-related disclosures in Australia to the international standards set by the International Sustainability Standards Board (ISSB). According to the group, the Bill provides critical certainty for business and professionals regarding the timing and requirements of mandatory climate-related disclosures, which then enables appropriate investment in resources and capacity building.
The group recognises that the move towards ISSB-based aligned standards will not be easy - it is a once-in-a-generation change to corporate reporting, which will require significant investment and upskilling across the Australian market. It will also take time, as organisations mature their disclosure practices. The group also recognises the need to manage the impact on smaller entities by carefully calibrating requirements.
According to the group, the Bill strikes a sensible and pragmatic balance, including the inclusion of a transitional relief period. It is critical to business certainty and continued Australian competitiveness for the Bill to be passed in a timely manner. The group urges the passage of the Bill through the Parliament without undue delay.
The group looks forward to working with the Australian Government, national standard setters, and each other to support the implementation of this regime.
Signatory organisations:
Australian Council of Superannuation Investors (ACSI )
Australian Institute of Company Directors (AICD )
Australian Shareholders’ Association (ASA )
Australian Sustainable Finance Institute (ASFI )
Australasian Investor Relations Association (AIRA )
Business Council of Australia (BCA )
Financial Services Council (FSC )
Governance Institute of Australia (GIA )
Group 100 CFOs
Institute of Public Accountants (IPA )
Insurance Council of Australia (ICA )
Investor Group on Climate Change (IGCC )
Responsible Investment Association Australasia (RIAA )
Property Council of Australia
UN Principles of Responsible Investment (UNPRI )
See AICD media release here .
Legislation and proposed legislation
No legislation and proposed legislation updates to report this fortnight.
Corporate cases
Adam Blumenthal ordered to pay $850,000 and disqualified for five years for market rigging and directors’ duties breaches
The Federal Court in Australian Securities and Investments Commission v Blumenthal [2024] FCA 384 has ordered Adam Blumenthal, former director of EverBlu Capital Pty Ltd (EverBlu) and Creso Pharma Limited (now known as Melodiol Global Health Limited) (Creso), to pay a penalty of $850,000 and disqualified Mr Blumenthal from managing a corporation for five years.
The Federal Court found Mr Blumenthal:
engaged in market rigging on 14 occasions in relation to the placing of orders for EverBlu clients to purchase shares in ASX-listed Creso;
breached his duties as a director of EverBlu in relation to his failure to comply with its compliance policies and causing it to breach its obligations as an Australian financial services (AFS) licensee which jeopardised its interests;
breached his duties as a director of Creso in relation to the engagement of Mr Tyson Scholz (a client of EverBlu) and another party (whose main trading entity was also an EverBlu client) to provide marketing and promotional services for Creso. Under these engagements, Creso paid Mr Scholz more than $2 million and the other party more than $1.2 million, in the absence of sufficient due diligence or imposing measurable deliverables; and
breached his duties as a director of Creso by failing to avoid and disclose to its board a conflict of interest, given his financial relationship with Mr Scholz as Mr Blumenthal’s private company, Anglo Menda Pty Ltd, had lent more than $7 million to Mr Scholz to fund his trading in Creso shares.
In handing down the penalty and disqualification, Justice Stewart stated at paragraph 38:
‘The contraventions are interrelated. They each had their source in Mr Blumenthal’s large shareholding in Creso, his position as the chairman of a financial services licensee with a capacity to employ trading strategies, and his intention of presenting a false or misleading picture to the market for Creso shares. The contraventions concerned fundamental obligations by a senior officeholder in each corporation and, in the case of EverBlu, a senior officeholder who oversaw and participated in the stockbroking services that it provided.’
Justice Stewart observed that the market rigging contraventions in this matter go ‘hand in hand’ with the director’s duties contraventions and ‘also go to the heart of the financial system and the necessity for public confidence in it. ’ His Honour added that the market rigging contraventions ‘were serious, deliberate, repeated and occurred over a period of around eight months ’ and that these matters justified the need for a significant penalty.
In an associated ASIC media release, ASIC Chair Joe Longo said that ASIC’s enduring priorities are promoting market integrity and addressing director misconduct. Market rigging is serious misconduct that impacts the integrity of Australia’s financial markets and prevents these markets from operating fairly and transparently.
Mr Longo said: ‘Today’s penalties are significant and should act as a deterrent to engaging in market misconduct. They are a timely reminder to directors of their obligations, including to avoid conflicts of interest, and that serious consequences are imposed for contraventions to help maintain confidence in the financial system.’
The Federal Court has also ordered Mr Blumenthal to pay $100,000 towards ASIC’s costs of the proceeding.
Mr Blumenthal admitted to contraventions of sections 1041B(1)(b), 180(1) and 181(1)(a) of the Corporations Act 2001 and agreed to the relief the parties proposed to the Federal Court.
Mr Blumenthal had also entered into an enforceable undertaking with ASIC in which he has undertaken to pay at least the sum of $150,000 towards ASIC’s investigations costs and undertaken not to provide financial services or carry on a financial service business for five years. The undertaking provides that, in the event that Mr Blumenthal intends to re-enter the financial services industry after the five-year period has lapsed, he undertakes to complete further professional training in areas deemed appropriate by ASIC prior to such re-entry.
See ASIC media release , Judgement and AFR article .
G+T Articles
G+T Insight - Not so glad to be green: ACCC commences first Federal Court case on greenwashing (19 January 2024)
In this G+T article, we discuss the ACCC initiating legal action against Clorox Australia Pty Ltd for allegedly misleading consumers by claiming that its GLAD-branded garbage bags were made with "50% ocean plastic," when in fact the plastic was not sourced directly from the ocean but from near-shore areas.
This marks a significant case in the ACCC's efforts to address deceptive environmental claims or "greenwashing."
Authors : Simon Muys (Partner), Jeremy Jose (Partner), Amelia McKellar (Special Counsel) and Kelvin Ng (Lawyer)
Calendar dates
30 June 2024 - Deadline for ADIs and their authorised NOHCs to submit registration applications and comply with notification obligations under FAR regime
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 starting on or after this date
15 March 2025 - Financial Accountability Regime takes effect for superannuation and insurance bodies