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Australian Securities & Investments Commission (ASIC)

ASIC’s Moneysmart calls on super funds to better engage millennials following findings from industry roundtable

ASIC’s Moneysmart convened a roundtable of leading influential voices for millennials and their finances that is sounding the alarm for superannuation funds to lift their game and increase services, transparency, and improved access to information to better engage millennial members.

New research from ASIC’s Moneysmart revealed the concerning trend that nearly half (48%) of surveyed millennials admit they are not knowledgeable about maximising their super. Despite being the first generation to enter the workforce with compulsory superannuation from day one of their working lives, millennials are less engaged with their super compared to previous generations. The roundtable convened by ASIC identified a significant transparency gap, with panellists suggesting super funds are failing to meet the expectations of their millennial members.

See ASIC media release.

ASIC enforcement and regulatory update Jan-June 2024

ASIC has published its Enforcement and Regulatory update (the Update) for the period January to June 2024. As stated in the media release, the Update highlights ASIC’s focus on misconduct in banking and superannuation sectors.

Key points:

• In the first half of 2024, ASIC was successful in 95% of its civil and criminal prosecutions and secured $32.2 million in civil penalties and 9 criminal convictions. These included the substantial penalties imposed by the Federal Court on Macquarie Bank Ltd ($10 million) for failing to properly monitor third-party fee withdrawals from customer accounts and the maximum available penalty being imposed on Westpac Banking Corporation for unconscionable conduct relating to a significant interest rate swap transaction. ASIC also launched 63 new investigations, commenced 12 new civil proceedings and completed 550 surveillances throughout the period.
• ASIC acknowledges the increasing difficulty experienced by consumers in making repayments on their home loans. In the last quarter of 2023, there was a 54% increase in the number of hardship notices about home loans compared with the same period in 2022.
• ASIC expects all lenders to act on the findings outlined in ASIC Report 782 Hardship, hard to get help: Lenders fall short in financial hardship support and to prioritise improving their approach to supporting customers in financial hardship.
• The Update also provides specific case studies and further information on financial hardship including scams, greenwashing, banking, unconscionable conduct, superannuation and cold calling, and choice superannuation products.  

ASIC Deputy Chair Sarah Court said,

“We have seen first-hand the impact on lives and livelihoods when lenders fail to appropriately support customers experiencing financial hardship. In the wake of our review, we put the lending industry on notice. We are actively conducting investigations into suspected breaches of hardship obligations. We will not hesitate to take enforcement action to ensure compliance”.

In the Update, ASIC noted the following:

1. Australian Banking Association’s Banking Code of Practice 2025

ASIC approved the Australian Banking Association’s new version of the Banking Code of Practice (the Code) in June 2024. The Code commences on 28 February 2025 and includes enhanced definitions of ‘vulnerability’ and ‘financial difficulty’ as set out below: 

• Vulnerability: The Code states the risk of vulnerability may be increased due to characteristics including age, disability; mental health conditions, cognitive impairment, serious medical conditions, elder abuse, family and/or domestic violence, financial abuse, financial difficulty (see below), literacy and/or language barriers including limited English, cultural background, Aboriginal or Torres Strait Islander customers, remote locations, or incarcerated persons or persons recently released from incarceration.
• Financial difficulty: Financial difficulty under the Code means one is unable to repay what they owe, they expect to be unable to pay upcoming repayments, or they are experiencing difficulty meeting their repayment obligations. This can be as a result of an unexpected event or unforeseen changes outside their control including impacts from: a) an illness or injury; b) loss of employment; c) a pandemic; or d) natural disasters such as droughts, fires, floods and earthquakes (as declared by an Australian Federal, State or Territory Government) or, if no such declaration is made, where ASIC is satisfied on other grounds that a natural disaster has occurred.

2. Superannuation

Superannuation and financial advice sectors are put on notice to do more to protect members from practices which put consumers at risk, such as a failure to seek choice (as opposed to underperforming) superannuation investment options and employing high-pressure tactics to encourage inappropriate superannuation switching.

ASIC expects the superannuation and financial advice industries to do everything possible to promote informed and confident investment decision making by members and, in particular, address conduct that inappropriately erodes members’ retirement savings.

ASIC expects funds to communicate proactively and transparently with members, be accountable and deal responsibly with their money and deliver value and services to consistently meet fair standards.

3. Regulatory developments timetable

The Update includes a timetable outlining proposed timeframes for ASIC regulatory work, such as the publication of draft or final guidance, anticipated making of a legislative instrument or publication of insights arising from thematic surveillances. The timetable excludes enforcement activities. 

It reflects ASIC’s best estimates as of 12 August 2024.

Last month, ASIC completed its review of 15 banks outside the four major banks on their scam prevention, detection and response activities. This ASIC Report 761 Scam prevention, detection and response by the four major banks is part of ASIC’s ongoing focus on anti-scam practices in the broader financial services landscape and follows on from a review of the scam-related activities of the four major Australian banks (Report 761) released in April 2023.

In the coming months, ASIC will announce the results of its surveillance into how superannuation funds are handling death benefits claims. ASIC will also continue its enforcement and intervention activities to address greenwashing.

ASIC calls on product issuers to review distribution practices for DDO compliance

ASIC is calling on product issuers to ensure distribution practices are up to scratch, pointing to flawed consumer questionnaires being the catalyst for some recent interim stop orders.

The call to action follows ASIC’s latest design and distribution obligations surveillance, which looked at the obligation for product issuers to take reasonable steps to support appropriate distribution of their products. Poor product design and distribution puts consumers at risk of financial harm as they can end up with products that don’t meet their needs.

ASIC reported the findings of its surveillance of 19 issuers of high-risk investment, insurance and credit products between October 2023 and August 2024 in ASIC Report 795 Design and distribution obligations: Compliance with the reasonable steps obligation. 

ASIC has also released minor updates to ASIC Regulatory Guide 274 Product design and distribution obligations (RG 274) to provide greater clarity on the appropriateness requirement for target market determinations (TMDs). The regulator states that changes to RG 274 will not require product issuers to update their TMDs.

See ASIC media release.

ASIC key actions and proceedings

• ASIC suspends AFS Licence of Olritz Financial Group Pty Ltd - ASIC suspended the Australian financial services (AFS) licence until 5 March 2025 because Olritz has not carried on a financial services business since May 2023. See ASIC media release.
• Former director of Reiwa-Capital sentenced after brazenly using $440,000 of investor funds - The former director of Reiwa-Capital, Russell Sandiford, has been sentenced in the District Court of New South Wales to two years and 8 months’ imprisonment, to be served by way of an Intensive Correction Order, relating to his dishonest use of investor funds. See ASIC media release.
• Court appoints receivers and new voluntary administrators to Keystone Asset Management - On 27 August 2024, the Federal Court made orders appointing Jason Tracy and Lucica Palaghia of Deloitte as receivers and managers of the property of Keystone Asset Management Ltd, the responsible entity for the Shield Master Fund.
• Court appoints receivers and new voluntary administrators to Keystone - On 27 August 2024, the Federal Court made orders appointing Jason Tracy and Lucica Palaghia of Deloitte as receivers and managers of the property of Keystone Asset Management Ltd, the responsible entity for the Shield Master Fund. See ASIC media release.
• ASIC wins against Rent4Keeps for overcharging vulnerable consumers on essential household goods – On 3 September, the Federal Court found the business model used by Rent4Keeps to sell everyday goods, such as furniture, electronics and whitegoods breached the National Consumer Credit Protection Act 2009 (Cth) (Credit Act). The Court found that Rent4Keeps and Darranda attempted to style their lending arrangements as “leases” for goods which the customer was not entitled to keep, when in fact customers did keep the goods, consistent with the business’s name.  However, the Court found that they were not leases but instead credit contracts meaning that Darranda contravened the 48 per cent annual rate cap and other requirements under the Credit Act. See ASIC media release.
• ASIC cancels AFS licence of retail OTC derivative issuer FXOpen AU - ASIC has cancelled the AFS licence of contracts for difference and foreign exchange contracts issuer FXOpen AU Pty Ltd, after an investigation identified serious concerns about the inadequacy of its human resources to provide financial services and to carry out supervisory arrangements. See ASIC media release.
• Former Courtenay House director sentenced to 11 years - Former Courtenay House director Tony Iervasi has been sentenced in the Supreme Court of NSW to 11 years imprisonment with a non-parole period of seven years for criminal charges relating to the operation of the Courtenay House ponzi scheme. The Courtenay House group offered returns to investors based on representations that their funds would be traded in the foreign exchange and futures markets. ASIC alleges that approximately 585 investors contributed over $180 million to the scheme but only a fraction of the funds were actually traded. Instead, the majority of new investor funds were used to repay earlier investors. See ASIC media release.
• Former Melbourne financial planner Bradley Grimm sentenced to jail for dishonest conduct - Former Melbourne financial planner Bradley Grimm has been convicted by the County Court of Victoria of three counts of engaging in dishonest conduct while running a financial services business. See ASIC media release.

APRA

APRA consults on minor updates to the prudential framework for ADIs, insurers and RSE licensees

APRA has released for consultation several minor updates to the prudential framework for authorised deposit-taking institutions (ADIs), general, life and private health insurers and registrable superannuation entity (RSE) licensees.

This consultation is part of the minor framework update process, intended to ensure technical and clarifying changes to the prudential framework can be made in a timely manner. The proposed amendments are primarily technical clarifications and do not present any material change in policy settings.

Submissions are requested to be provided no later than 4 October 2024.

The letter to ADIs, insurers and RSE Licensees, draft standards and draft guidance are available on the APRA website at: Minor updates to the prudential framework.

APRA consults on minor updates to the prudential framework for ADIs, insurers and RSE licensees

APRA has released for consultation a number of minor updates to the prudential framework for ADIs, general, life and private health insurers and registrable superannuation entity licensees. This consultation is part of the minor framework update process, intended to ensure technical and clarifying changes to the prudential framework can be made in a timely manner. The proposed amendments are primarily technical clarifications and do not present any material change in policy settings.

Submissions are requested to be provided no later than 4 October 2024.

See APRA media release.

APRA proposes update to bank capital framework to strengthen crisis preparedness

APRA has proposed changes to the capital framework for banks in relation to hybrid instruments to simplify and improve the effectiveness of bank capital in a crisis. 

The proposed changes, outlined in a discussion paper released on 10 September, seek to support financial system stability at times of crisis with simpler and more certain resolution of banks in the unlikely event of failure. They are also aimed at reinforcing confidence in the safety of deposits at times of stress. 

APRA is proposing that banks phase out the use of AT1 capital instruments (often called hybrid bonds) and replace them with cheaper and more reliable forms of capital that would absorb losses more effectively in times of stress. The total amount of regulatory capital that APRA requires banks to hold would remain unchanged and banks would remain ‘unquestionably strong’.

See APRA media release.

APRA and ASIC release notes on Superannuation CEO Roundtables - June and July 2024 

APRA and ASIC are releasing the public notes on the Superannuation CEO Roundtables held on Tuesday 18 June and Tuesday 16 July 2024. The roundtables were hosted by APRA and ASIC and attended by 12 superannuation trustee Chief Executive Officers, representing a broad cross-section of the industry.

The notes can be found on the APRA website.

APRA seeks disqualification of First Super co-chair Michael O’Connor

APRA has commenced proceedings in the Federal Court of Australia seeking civil penalties and the disqualification of First Super Pty Ltd (First Super) director and co-chair Michael O’Connor. Mr O’Connor is also the National Secretary of the Manufacturing Division of the Construction Forestry and Maritime Employees Union (CFMEU).

The action follows an investigation by APRA into a contract between First Super and the CFMEU for member and employer services (MESC contract). The MESC contract concluded in 2023.

APRA alleges that Mr O’Connor breached a number of the director covenants contained in the Superannuation Industry (Supervision) Act (SIS Act) including the covenants to: 

• Act honestly in all matters concerning First Super (section 52A(2)(a) of the SIS Act).
• Exercise, in relation to all matters affecting First Super, the same degree of care, skill and diligence as a prudent superannuation entity director would exercise (section 52A(2)(b) of the SIS Act).
• Perform his duties and exercise his powers as a director of First Super in the best financial interests of beneficiaries (section 52A(2)(c) of the SIS Act).
• Prioritise the interests of beneficiaries when in a position of conflict (section 52A(2)(d) of the SIS Act).

For more information, see APRA media release, Originating Application, Concise Statement.

Legislation and proposed legislation

Introduction of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024

The government’s Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 introduces significant, overdue reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime.

The Bill will close a regulatory gap in Australia by expanding the regime to address vulnerabilities within ‘tranche-two’ entities, including lawyers, accountants, real estate professionals and dealers in precious stones and metals. AUSTRAC’s recent Money Laundering National Risk Assessment noted criminals are increasingly exploiting these sectors to conceal illicit wealth and launder money.

The Bill will also help bring Australia into line with international standards set by the Financial Action Task Force (FATF). Australia is now one of only five jurisdictions out of more than 200 that do not regulate these tranche-two entities or ‘gatekeeper’ professions. It means Australia is at serious risk of being ‘grey-listed’ by the FATF, which would not only be damaging to Australia’s international reputation but could result in significant economic harm to Australians and businesses.

The government is taking the opportunity to simplify, clarify and streamline the AML/CTF regime. This will reduce the regulatory burden on businesses and make it easier to understand and implement effective measures to combat financial crime. The reforms will allow businesses to take a risk-based approach, allowing industry to prioritise their resources. The reforms will also lead to better quality financial data and make it easier for businesses to protect themselves from misuse by criminals.

See Attorney General’s media release.

See AUSTRAC media release.

G+T articles

G+T Insight - The Australian merger review law reforms: our deeper dive into the practical implications and frequently asked questions – discusses the Australian Government's release of the exposure draft of the Treasury Laws Amendment Bill 2024, focusing on significant and complex merger reforms that will have major implications for competition clearances in Australia, including expanded notification requirements, new penalty provisions, and broader definitions of substantial lessening of competition – Elizabeth Avery and Haidee Leung (3 September 2024).

G+T Insight - Privacy Amendment Bill: a new risk landscape – discusses the Privacy and Other Legislation Amendment Bill 2024, which introduces significant changes to Australia's privacy laws, focusing on enhancing enforcement, protecting children's online privacy, introducing a new statutory tort for serious invasions of privacy, and expanding penalties and monitoring powers, while omitting several key individual rights proposals from the original Privacy Act Review  – Melissa Fai and Claire Harris (12 September 2024).

G+T Insight - Sustainability Insights – offers a practical overview of the rapidly evolving landscape of sustainability regulation, policy and practice with each issue providing a strategic overview of the latest sustainability developments and their implications for companies and investors – Ilona Millar and Melissa Fai. (13 September 2024). 

Calendar dates

• 20 September 2024 – Submissions close for merger reform consultation on notification thresholds.
• 1 October 2024 – Report on the independent review of Australia’s credit reporting framework due.
• 14-15 November 2024 – ASIC annual forum.
• 20 November 2024 – Final report due in the Senate inquiry into greenwashing.
• 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.
• 28 February 2025 – Updated Banking Code of Practice (2025 version) comes into effect.
• 15 March 2025 – Financial Accountability Regime takes effect for superannuation and insurance bodies.
• 1 July 2026 – Mandatory climate-related financial disclosures for Group 2 entities proposed to apply in respect of financial years starting on or after this date.
• 1 July 2027 – Mandatory climate-related financial disclosures for Group 3 entities proposed to apply in respect of financial years starting on or after this date.