03/07/2024

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

A Sustainable Finance Roadmap to unlock more private capital – see Roadmap.

Changes to banking product regulation – see media release.

Climate-related financial disclosure: Bill passes House – see bill.

ASIC Corporate Finance Update Issue 17: June 2024 – see update.

ASX admits first Bitcoin ETF – see media release.

APRA releases letter on SPS 530 Valuation Governance Framework Self-Assessment Survey – see letter.

APRA releases the new digital Prudential Handbook – see handbook.

APRA finalises superannuation prudential framework amendments for audit – see media release.

APRA publishes the March 2024 edition of the Quarterly Superannuation Product Statistics, Superannuation Industry Publication and the inaugural Fund-level Statistics – see media release.

AUSTRAC CEO Brendan Thomas – Speaking notes at ACAMS Conference, The Assembly Australasia – see speech.

Cryptocurrency provider without an AFSL wholly relieved of liability to pay a penalty: Australian Securities and Investments Commission v Web3 Ventures Pty Ltd (Penalty) [2024] FCA 578 – see judgment.

Treasury Consultation: Delivering Better Financial Outcomes Tranche 1 – Draft Regulations – see consultation.

Parliamentary Joint Committee Opening Statement by ASIC Chair Joe Longo, 14 June 2024 – see media release.

APRA finalises cross-industry guidance on operational resilience – see media release.

APRA releases quarterly authorised deposit-taking institution statistics for March 2024 – see media release.

IOSCO: The International Financial Reporting Standards (IFRS) Foundation Monitoring Board welcomes the progress of standard-setting activities and underscores the importance of the oversight by the IFRS Foundation Trustees – see media release.

AICD: Governance of Artificial Intelligence – see media release.

Signature as a company director binds that individual personally under a purported deed: Sinclair v Balanian [2024] NSWCA 144 – see judgment.

G+T Insight - Navigating Diverse Global AI Regulation: The Vital Role of International Standards – Simon Burns and Jen Bradley (11 June 2024).

Australian Securities & Investments Commission (ASIC)

ASIC Corporate Finance Update: Issue 17 - June 2024

ASIC has published ASIC Corporate Finance Update: Issue 17 - June 2024, which includes information about:

  • An update to ASX Guidance Note 8: Continuous Disclosure: Listing Rules 3.1 – 3.1B to include a worked example of a data breach and how existing ASX policy applies to the hypothetical scenario.
  • A recent speech by ASIC Commissioner Simone Constant, called on listed companies to focus on three important principles in meeting the fair expectations of stakeholders: transparency, accountability, and consistency.
  • The first crowd-sourced funding regime stop order issued by ASIC.
  • An application for relief to modify the definition of ‘triggering conditions’ in section 609A(3) of the Corporations Act 2001 (Cth) (Corporations Act) to facilitate an acceptance facility under a takeover bid.
  • Action ASIC has taken to restrict three listed companies from issuing a reduced-content prospectus for 12 months due to their failure to lodge financial and other reports in line with their obligations under the Corporations Act.
  • Applying for relief from the financial reporting requirements of the Corporations Act in the lead-up to 30 June. ASIC notes that often applications for such relief are invalid, lodged incorrectly or fail to adequately address at least one of the statutory preconditions in section 342(1) of the Corporations Act.

See the ASIC update here. 

Parliamentary Joint Committee Opening Statement, 14 June 2024

On 14 June 2024, ASIC Chair Joe Longo delivered an opening statement at the Parliamentary Joint Committee on Corporations and Financial Services, Oversight of ASIC, the Takeovers Panel, and the Corporations Legislation.

In his speech, Mr Longo highlighted ASIC's recent enforcement activities, noting a significant increase in new investigations and civil proceedings over the past year. Emphasising ASIC's role as a leading law enforcement agency, Mr Longo highlighted several notable cases and outcomes achieved through court actions. 

Mr Longo then addressed ASIC's digital transformation efforts, stressing the importance of technology in enhancing enforcement and compliance capabilities. He outlined recent investments in cybersecurity and data analytics, aimed at improving efficiency in investigations and ensuring regulatory effectiveness in a rapidly evolving digital environment.

Additionally, Mr Longo touched upon ASIC's global engagement and collaboration with international regulators on emerging issues like AI, digital scams, private markets, and sustainable finance.

See the ASIC media release.

ASIC issues first crowd-sourced funding regime stop order

On 13 June 2024, ASIC issued an interim stop order preventing Hirehood Pty Ltd (Hirehood) from offering securities under its crowd-sourced funding (CSF) offer document published on VentureCrowd Pty Ltd's CSF intermediary platform. 

This is ASIC’s first use of its stop order powers about a CSF offer under the Corporations Act.

Hirehood’s use of a nominee arrangement in this offer did not permit investors to directly acquire ordinary shares in Hirehood. Instead, shares issued by Hirehood were intended to be held by a related party of the CSF intermediary, as a nominee on bare trust for the shareholders. 

Hirehood’s nominee arrangement resulted in investors holding only an equitable interest in the fully paid ordinary shares, rather than full legal and equitable ownership rights normally associated with the ownership of ordinary shares.

ASIC took urgent action to protect retail investors on the basis that: 

  • For an offer to be valid under the current CSF regime, only fully paid ordinary shares can be offered. 
  • The CSF offer document did not comply with the minimum content requirements prescribed in the Corporations Act and Corporations Regulations 2001 (Cth), which includes providing sufficient detail about the issuer’s business model.

See the ASIC Media Release 24-125MR.

ASIC Key actions and proceedings

  • ASIC appeals Court’s decision to relieve Block Earner from liability to pay a penalty – ASIC has appealed the Federal Court’s decision to relieve 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. 
  • Federal Court freezes assets of Shield Master Fund - ASIC has obtained interim orders from the Federal Court freezing the assets of the Shield Master Fund, a registered managed fund whose responsible entity is Keystone Asset Management Ltd. ASIC sought the orders to help protect investor funds while an investigation is continuing. See ASIC media release.
  • MDP issues infringement notice to Ascot Securities for serious failures - The Markets Disciplinary Panel (MDP) has issued an infringement notice to Ascot Securities Pty Ltd on 24 November 2023 for serious failures, requiring it to pay a penalty of $3.1 million and enter an enforceable undertaking. See ASIC media release.
  • PKF admits to contraventions concerning independent expert report engagements - ASIC has accepted a court-enforceable undertaking from Australian Financial Services licensee PKF Melbourne Corporate Pty Ltd. See ASIC media release.
  • Court finds iSignthis breached disclosure laws and Nickolas Karantzis breached his directors’ duties - the Federal Court has found iSignthis Ltd, now known as Southern Cross Payments Ltd, engaged in several contraventions of the law between 2018 and 2020. See ASIC media release.
  • ASIC cancels AFS licence of Sug Ou Jeung - ASIC has cancelled the AFS licence of Sydney-based financial services provider Sug Ou Jeung. See ASIC media release.
  • ASIC cancels licence of Haywards Audit Pty Ltd - ASIC has cancelled the AFS licence of Haywards Audit Pty Ltd taking effect on 7 June 2024. See ASIC media release.
  • ASIC suspends AFS licence of Responsible Entity Services Limited - ASIC has suspended the AFS licence of Responsible Entity Services Limited until 11 June 2025. See ASIC media release.

Australian Prudential Regulation Authority (APRA)

 APRA finalises cross-industry guidance on operational resilience

APRA has published its finalised Prudential Practice Guide CPG 230 Operational Risk Management (CPG 230).

CPG 230 aids banks, insurers and superannuation trustees to comply with Prudential Standard CPS 230 Operational Risk Management (CPS 230), which was finalised in July last year and takes effect from 1 July 2025.

Key changes (from the draft guidance) include:

  • the guidance has been shortened and is more tightly focused on how to meet expectations set by the standard;
  • entities that are classified as non-Significant Financial Institutions have an additional 12 months to comply with certain requirements in CPS 230 relating to business continuity and scenario analysis;
  • APRA has included a ‘day one’ checklist for entities to assist in their implementation of CPS 230; and
  • APRA has provided a three-year forward plan of its intended approach to supervising CPS 230 to assist the industry with implementation and planning.

CPG 230 adopts a more principles-based approach by giving entities more discretion on applying the standard. Certain examples in the draft guidance have been removed in CPG 230. This enables entities to identify how the rules in CPS 230 apply to their business without having to follow (or explain why they are not following) examples in APRA’s guidance. 

APRA Chair John Lonsdale said operational resilience was becoming increasingly important in the digital financial age.

“Disruptions to financial services can have a major impact on people who rely on them to save, spend, recover from financial loss or support themselves in retirement.”

“CPS 230 is designed to ensure entities safeguard the resilience of their operations and are well prepared to respond to disruptions. By amending the accompanying guidance, we aim to keep industry standards high while also being mindful of the compliance burden on smaller entities so they can remain competitive.”

The response paper is available on the APRA website at Response to submissions - CPG 230 Operational Risk Management.

See the APRA media release.

APRA releases letter on SPS 530 Valuation Governance Framework Self-Assessment Survey

APRA has released a letter to RSE licensees outlining key observations from the SPS 530 Valuation Governance Framework Self-Assessment Survey.

The survey of unlisted asset governance practices was conducted by APRA in late 2023 to assess the implementation of the enhanced requirements contained in Prudential Standard SPS 530 Investment Governance and related guidance.

The letter is available on the APRA website at Observations from SPS 530 Valuation Governance Framework Self-Assessment Survey.

APRA releases the new digital Prudential Handbook

APRA has issued a letter to all regulated entities announcing the release of the new digital prudential framework in the form of the ‘Prudential Handbook’. 

Click here for access to the new APRA Prudential Handbook. 

The Prudential Handbook brings together all prudential standards and prudential practice guides, as well as associated letters to industry, information papers, and FAQs in a digitised and searchable form.

The new Prudential Handbook is the culmination of APRA’s multi-year programme which commenced in September 2022 with the launch of its information paper on modernising the prudential architecture. 

The Prudential Handbook is currently in a ‘Beta’ version. APRA is inviting feedback through roundtable sessions to be held in early July and via PrudentialHandbook@apra.gov.au. The Handbook will run in parallel with the existing APRA website (which currently hosts links to standards and guidance) for the next few months to facilitate a smooth transition. The final version of the Handbook is expected to be released at the end of July.

The letter is available on the APRA website in APRA’s new digital Prudential Handbook. 

Our article on the new APRA Prudential Handbook may be found here. 

APRA finalises superannuation prudential framework amendments for audit

APRA finalised its consultation on minor and consequential amendments to the superannuation prudential framework for audit. In the letter released on 18 June 2024, APRA set out its response to feedback from the consultation and issued final versions of the relevant prudential standards and guidance.

The letter, submissions to the consultation, and final and marked-up versions of the prudential standards and guidance can be found at Audit consequential amendments – superannuation.

Australian Transaction Reports and Analysis Centre (AUSTRAC)

AUSTRAC CEO Brendan Thomas - Speaking notes at ACAMS Conference, The Assembly Australasia

On 19 June 2024, AUSTRAC CEO Brendan Thomas delivered a speech at the ACAMS Conference emphasising the evolving landscape of AML/CTF regulation and its profound implications for professionals in Australia. He highlighted:

  • The government's second round of consultations on Tranche 2 reforms aimed at regulating professional service providers, underscoring the sector's crucial role in combating financial crime.
  • The importance of industry-government collaboration, citing AUSTRAC's role in supporting law enforcement with financial data analysis. 
  • Outlined upcoming national risk assessments and regulatory priorities, urging businesses to adopt robust AML/CTF frameworks.

The need for industry vigilance and support for legislative reforms to safeguard against criminal exploitation and enhance Australia's financial integrity was also emphasised.

See his speech here.

Other regulators

OSCO: The IFRS Foundation Monitoring Board welcomes the progress of standard-setting activities and underscores the importance of oversight by the IFRS Foundation Trustees

During last week’s meeting of the IFRS Foundation Monitoring Board in Singapore, the Monitoring Board discussed the activities of the Trustees of the IFRS Foundation, including their oversight responsibilities with respect to the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB). The meeting was joined by the members of the Trustees of the IFRS Foundation under the leadership of Erkki Liikanen, Chair of the Trustees, as well as Andreas Barckow, Chair of the IASB, and Emmanuel Faber, Chair of the ISSB.

Among other activities, the Monitoring Board welcomed the finalisation of the Inaugural Jurisdictional Guide for the adoption or other use of ISSB Standards in May 2024. The Monitoring Board members shared their views on different ways to adopt, apply or make use of sustainability-related disclosures. They also acknowledged the usefulness of consistency, comparability, and interoperability of sustainability-related information for the benefit of investors and the ISSB’s capacity-building efforts as jurisdictions consider incorporation of climate-related and other disclosures in their corporate reporting regimes.

The Monitoring Board noted the importance of rigorous due process in the development of high-quality IFRS Accounting Standards and the IFRS Sustainability Disclosure Standards and that the Monitoring Board will continue to collaborate with the Trustees to ensure both sets of Standards are developed under robust governance, due process and oversight while ensuring independence in their individual standard setting activities. In this context, the Monitoring Board took note of the finalisation of the two new IFRS Accounting Standards, IFRS 18 Presentation and Disclosure in Financial Statements and IFRS 19 Subsidiaries without Public Accountability. Disclosures by the IASB and the recent decision by the ISSB to commence research projects related to biodiversity, ecosystems, and ecosystem services as well as human capital.

As for the broad strategies of the IFRS Foundation, the Monitoring Board reaffirmed that stable and diversified funding should be achieved transparently in support of both Standard Setting Boards’ activities. The Monitoring Board also noted the importance of connectivity between the two Boards under the ‘Two Boards under One Foundation’ model.

See the IOSCO media release.

AICD: Governance of Artificial Intelligence

AICD has partnered with the Human Technology Institute (HTI) at the University of Technology Sydney, to produce a new suite of resources to help directors and boards navigate the era of AI.

In its media release, the AICD warned that as more organisations adopt AI technologies and policymakers focus increasingly on regulating AI risks, the need for directors and boards to understand the governance requirements of ethical and informed use of AI is rapidly becoming imperative. It also pointed to research that suggests boards face multiple challenges, including how to implement effective oversight systems and gain clearer lines of sight of AI use within their value chains.

The AICD’s new resources are designed to better position directors to take advantage of the benefits of AI while avoiding the risk of serious harm, including customer impacts, commercial losses, reputational damage and regulatory breaches.

AICD Managing Director and CEO Mark Rigotti said: “We must assist directors and boards rise to the governance challenges that this new era of AI represents while ensuring their organisations can tap into these emerging and transformational technologies”.

See AICD media release. 

Corporate cases

Cryptocurrency provider without an AFSL wholly relieved of liability to pay a penalty: Australian Securities and Investments Commission v Web3 Ventures Pty Ltd (Penalty) [2024] FCA 578

On 4 June 2024 in ASIC v Web3 Ventures [2024] FCA 578, the Federal Court granted Web3 Ventures Pty Ltd (Block Earner) (a cryptocurrency provider) relief from liability to pay a penalty for contraventions of the Corporations Act relating to the provision of unlicensed financial services. 

This follows the Federal Court's decision on liability in ASIC v Web3 Ventures Pty Ltd [2024] FCA 64, which found that Block Earner had contravened the Corporations Act (from March to November 2022) by:

  • carrying on a financial services business without an Australian Financial Services Licence (AFSL) (in breach of section 911A(1) and (5)); and
  • operating an unregistered management investment scheme (in breach of section 601ED(5) and (8)) when offering its fixed-yield Earner product.

Both contraventions related to the offering of an Earner product, which was available on Block Earner's platform for eight months before it was voluntarily discontinued.

Block Earner applied for relief from liability under section 1317S of the Corporations Act on various grounds, including that it:

  • did not seek to obtain an improper financial gain by operating without an AFSL or as an unregistered managed investment scheme; and
  • had obtained legal advice from a law firm regarding the risks of breaching any laws or regulations before launching the product.

The Court granted Block Earner's relief application, finding that it acted honestly and not carelessly when it offered the Earner product. The following evidence demonstrated that Block Earner made a genuine attempt to comply with the law:

  • Block Earner's director had considered whether an AFSL was required to provide the product and formed the view that it was not necessary; and
  • the company had obtained legal advice before launching the product, which led it to form the view that there was no risk that the product would breach any laws or regulations (at [7]-[12]).

The Court also found that Block Earner:

  • "ought to fairly be excused" from liability, having regard to all the circumstances of the case and weighing a number of factors (set out at [13]-[43]); and
  • should be wholly, and not just partly, relieved of liability for a pecuniary penalty under section 1317S of the Corporations Act, and that to do so would not encourage others to engage in complacent, careless, or imprudent conduct about the need to comply with the Corporations Act (at [44]-[47]).

Recent update

On 18 June, ASIC appealed the Court’s decision to relieve Block Earner from liability to pay a penalty.

A copy of ASIC’s Notice of Appeal, which sets out the grounds on which ASIC says the Court erred in granting this relief, is available here. The appeal will be heard by the Full Federal Court on a date to be determined.

See the full judgment here.

Where signature as a company director also binds that individual personally under a purported deed: Sinclair v Balanian [2024] NSWCA 144

A recent unanimous judgment in the New South Wales Court of Appeal has demonstrated how certain common technical deficiencies in both the drafting and execution of a deed can lead to confusion, dispute, and expense.

In Sinclair v Balanian [2024] NSWCA 144, the Court of Appeal held that deficiencies in the form and execution of a document intended to function as a deed of settlement, release, and indemnity did not deprive the instrument of its intended effect, in circumstances where the intentions of the parties were clear on the evidence. The judgment also confirms the principle that one signature can serve to bind the signatory in multiple capacities, such as where a person who signs only as an officer of a company also has personal obligations under the instrument.

For more detailed guidance on the legal principles underpinning deeds and execution, see:

ASX

ASX admits first Bitcoin ETF

On 20 June, the ASX announced the admission of its first spot Bitcoin exchange-traded fund (ETF), marking a significant milestone in the Australian financial market and cryptocurrency industry.

The admission of the VanEck Bitcoin ETF (ASX:VBTC) comes as crypto assets, such as Bitcoin and Ether, increasingly move into the investment mainstream, supported by increased regulatory guidance around the product category and growing consumer demand.

Andrew Campion, GM of Investment Products & Strategy said, “We’re really pleased to admit the ASX’s first Bitcoin ETF, responding to increased customer demand for access to cryptocurrency assets, and providing access to more investment options for Australians”.

“At ASX, a key part of our role is to ensure that investors can have confidence in trading securities and have certainty in the structure of their holdings. To achieve this, we’ve been working on bringing a crypto asset ETF to market for a number of years, including establishing a new category of permissible underlying assets for ETFs in August 2022 which includes Bitcoin and Ether.”

“While it has been possible to trade Bitcoin via crypto exchanges, trading units with exposure to Bitcoin via an ETF on an exchange like ASX means you’re able to buy and sell those units through a traditional brokerage account, simplifying the process and opening the opportunity to more Australians.”

VBTC will be backed by a Bitcoin holding via a US-domiciled master fund, ensuring that each unit of the ETF corresponds to a specific amount of Bitcoin. This structure aims to give investors exposure to the price of Bitcoin, providing investors with a robust and transparent reflection of the crypto asset's value.

“As the demand for digital assets continues to grow, we are proud to offer a regulated avenue for Australian investors to access the crypto asset market,” Mr Campion said.

See the ASX media release. 

Legislation and proposed legislation

 A Sustainable Finance Roadmap to unlock more private capital

On 19 June 2024, the Australian Government released the Sustainable Finance Roadmap (Roadmap), setting out its vision for the implementation of key sustainable finance reforms and related measures to maximise the economic opportunities associated with net zero and Australia’s sustainability goals. 

The Roadmap sets out what the Government believes is needed to:

  • embed the Government’s mandatory corporate climate disclosure regime;
  • complete Australia’s Sustainable Finance Taxonomy;
  • develop product labelling requirements for investments marketed as sustainable, so investors can trust the sustainable finance products they are putting money into; and
  • develop a set of best practice guidelines to advise businesses on how to disclose their net zero transition plans.

The government will continue to widely engage with stakeholders to inform ongoing policy development.

The Roadmap was developed in response to consultation on the Sustainable Finance Strategy in November 2023.

View the Sustainable Finance Roadmap and the previous Sustainable Finance Strategy consultation. 

Changes to banking product regulation

The government is attempting to help Australians get better rates on their mortgages and savings accounts. These changes come in response to two ACCC inquiries.

The ACCC completed its ‘Inquiry into retail deposit products’ – commissioned by the government – in December 2023. It completed its ‘Inquiry into home loan’ pricing in 2020. The changes announced respond to both inquiries.

The government says it will be easier for customers to find the best deals and switch to them. The government says this will occur due to a raft of changes, including:

  • Making banks tell customers when their interest rate changes on their transaction or savings account and improve disclosure requirements for basic deposit products.
  • Requiring financial product comparison websites to better disclose what determines how products are Ranked and the financial relationships they have with recommended product providers.
  • Making it easier to switch loans by ensuring customers have direct and easy access to the forms needed to exit a mortgage.
  • Working with banks to help improve how customers are notified about bonus interest rate offers and when an introductory lower interest rate period ends, including through the potential development of industry standards.
  • Asking the Treasury to investigate how behavioural economics and prompts could be used in the banking sector to encourage consumers to switch to cheaper home loans and retail banking products.

The government also announced a review into the challenges faced by small and medium-sized banks led by the Council of Financial Regulators in consultation with the ACCC. The review will focus on the role small and medium-sized banks play in providing competition in the sector and the regulatory and market trends affecting them. It will propose ways to improve regulation and ensure that oversight of these banks appropriately balances competition, innovation, and stability.

See the Treasury media release.

Climate-related financial disclosure: Bill passes House

On 6 June 2024, the House of Representatives passed the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth). The Bill will implement standardised, internationally aligned requirements for mandatory disclosure of climate-related risks and opportunities in Australia.

See the Bill here and its Explanatory Memorandum here.

Treasury Consultation: Delivering Better Financial Outcomes Tranche 1 – Draft Regulations

The Australian Government is consulting on the Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024 (draft regulations). These are consequential amendments to support the implementation of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (the Amending Bill) and delivery of the first tranche of the government’s response to the Quality of Advice Review.

The draft regulations:

  • support written information or documentation requirements for section 99FA of the Superannuation Industry (Supervision) Act 1993 to continue to be met electronically;
  • remove requirements related to Fee Disclosure Statements, update record-keeping obligations for new consent requirements and remove references to civil penalties which are removed in the Amending Bill;
  • align requirements for Financial Services Guides and Website Disclosure Information and make other consequential amendments;
  • streamline the regulations for conflicted remuneration in line with the changes to the Amending Bill; and
  • ensure that when personal advice is provided regarding a general insurance product, the requirements for informed consent are met and applied to any benefits provided.

All interested parties are encouraged to provide feedback on the draft regulations by 8 July 2024.

See the Treasury Consultation.

G+T Articles

Navigating Diverse Global AI Regulation: The Vital Role of International Standards – outlines the divergent approaches that jurisdictions are taking to regulate AI despite international commitments to cooperation. 

The article emphasises the importance of leveraging international technical standards to achieve interoperability, reduce compliance burdens, and foster safe, responsible AI development and innovation globally – Simon Burns and Jen Bradley (11 June 2024).

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