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
- Australian Securities & Investments Commission (ASIC)
- Australian Prudential Regulation Authority (APRA)
- Other regulators
- Corporate cases
- Legislation and proposed legislation
- G+T Articles
- Calendar dates
On the pulse
Senate Greenwashing Inquiry final report pushed back to 20 November 2024 – see Inquiry.
Climate-related financial disclosure: Bill introduced in the Senate & second reading moved – see Bill.
ASIC approves enhanced Banking Code of Practice – see media release.
ASIC calls on market intermediaries to strengthen supervision of business communications – see media release.
Senate Economics References Committee: Australian Securities and Investments Commission investigation and enforcement Report – Jul 2024 – see Report.
ASIC urges AFS licensees to correct records on the Financial Advisers Register – see media release.
ASX Group Monthly Activity Report – June 2024 – see Report.
ASX confirms plans for staged implementation of CHESS replacement project and releases response to feedback – see media release.
ASX: listing fee changes for FY25 in effect from 1 July 2024 – see changes.
Putting customers at the centre of banking – see speech.
APRA Chair John Lonsdale - Speech to ABA Conference 2024 – see speech.
APRA publishes response to submissions on minor updates to capital framework for ADIs – see media release.
APRA strengthens core prudential standard to support outcomes for members in super – see media release.
Super trustees urged to strengthen oversight of retirement strategy implementation – see media release.
Australian Banking Association Customer Trends 2024-25 – see Report.
ABA’s strategic review of the CDR regime – see Report.
G+T Insight - One-stop digital shop – APRA’s new Prudential Handbook - Silvana Wood and Chris Whittaker (26 June 2024)
G+T Insight - Boardroom Brief: Week commencing 1 July 2024 – Justin Mannolini and Cassandra Lee (2 July 2024)
G+T Insight - Balancing transparency and legal protection: Expert reports into catastrophic failures – Kon Nakousis and Michal Magat (24 June 2024)
Australian Securities & Investments Commission (ASIC)
ASIC approves enhanced Banking Code of Practice
The Australian Banking Association (ABA) updated Banking Code of Practice has been approved by ASIC.
The new Code will commence on 28 February 2025 and includes:
- An expanded definition for ‘small business’ from $3 million to $5 million in aggregate borrowings, which means an additional 10,000 small business customers will be eligible for the protections of the Code.
- New obligations for banks to meet with customers intending to act as guarantor to help them understand their obligations before accepting a guarantee.
- A new vulnerable customer definition, acknowledging anyone can become vulnerable at any time.
- New provisions for managing deceased estates.
- A new commitment to organise or refer customers to free support services such as interpreters, AUSLAN and National Relay Services.
- A broadened definition of ‘financial difficulty’.
ASIC says it sought to ensure there was no diminishment of key Code protections (including the requirement to act with the care and skill of a diligent and prudent banker for consumer borrowers and their guarantors). The Code retains important provisions regarding the handling of consumer complaints and ensuring the robust oversight of the Code by the Banking Code Compliance Committee, including by a new provision that commits subscribing banks to be bound by their obligations under the Banking Code Compliance Committee Charter.
ASIC calls on market intermediaries to strengthen supervision of business communications
ASIC is calling on market intermediaries to strengthen their supervisory arrangements for recording and monitoring representatives’ business communications to prevent, detect and promptly address misconduct and contraventions of financial services laws.
ASIC’s Information Sheet 283 Supervising your representatives’ business communications (INFO 283) responds to concerns that the use of unmonitored communication channels and encrypted communication applications in business communications can significantly increase the risk of misconduct going undetected.
INFO 283 gives practical guidance to market intermediaries (including investment banks, participants of exchange and over-the-counter markets, securities dealers and corporate advisers) about managing these risks, embedding supervisory arrangements for business communications and reviewing their effectiveness in compliance with their obligations under the Corporations Act and ASIC market integrity rules.
The Information Sheet deals with common challenges and pitfalls for market intermediaries in effectively supervising their representatives’ business communications, including:
- The emergence of new and popular communication channels that are outside the scope of their surveillance systems.
- Weak or no controls to identify where data used in surveillance systems is incomplete or erroneous.
- Reliance on ’out of the box’ settings of vendor-provided communication surveillance systems and a failure to routinely calibrate alert parameters.
See ASIC media release.
Senate Economics References Committee: Australian Securities and Investments Commission investigation and enforcement report
On 27 October 2022, the Senate referred an inquiry into the capacity and capability of ASIC to undertake proportionate investigation and enforcement action arising from reports of alleged misconduct to the Senate Economics References Committee (the Committee). On 3 July 2024, the Senate released its report, finding that ASIC has ‘comprehensively failed to fulfil its regulatory remit’.
The report recommends that ASIC be split into a regulator and a financial conduct investigator. The Committee stated that ASIC’s capacity to respond to corporate misconduct is compromised by significant structural, resourcing and cultural issues, and that its approach fails to deliver justice to the victims of corporate crimes and does not deter future poor behaviour.
The Committee provided 11 recommendations, which [GT1] [GT2] include (among other things) that the Australian Government:
- Recognise that ASIC has comprehensively failed to fulfil its regulatory remit.
- Recognise, based on the finding of recommendation one, that ASIC’s regulatory failures call into question whether its remit is too broad for it to be an effective and efficient agency, and the government should strongly consider separating its functions between a company’s regulator and a separate financial conduct authority.
- Urgently address the shortcomings in Australia’s system for handling reports of alleged corporate misconduct. In doing so, the Committee recommends that the Australian Government make it a legislative requirement of ASIC or future regulatory authorities to investigate reports of alleged misconduct at an appropriate rate.
- Make it a legislated regulatory objective of the ASIC or other regulatory authorities to establish and maintain a high-level of transparency of investigation and enforcement outcomes.
- Investigate amending the whistleblower protection provisions in the Corporations Act to include pecuniary incentives and compensation for whistleblowers who make a substantiated disclosure.
- Reassess the funding arrangements for ASIC or any alternative regulatory authority so that (among other things) a greater level of funding can be directly resourced with the proceeds of regulatory fines, including late fees, court fines, penalties and infringement notices.
Government committee members have rejected the finding that ASIC had ‘comprehensively failed’ and stated that the proposal to split ASIC was ‘little more than a headline’.
See the Report here.
ASIC urges Australian Financial Services (AFS) licensees to correct records on the Financial Advisers Register
ASIC is calling on AFS licensees to assess the accuracy of records about their financial advisers on the Financial Advisers Register after a spot check identified errors and inconsistencies in some of the information provided.
Issues identified relate to qualifications and training courses being marked as ‘approved’ on the Financial Advisers Register, when in many cases, this marking was incorrect.
Common errors include:
- Some of the qualifications marked as ‘approved’ did not accurately match the wording of the course in the Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Determination 2021 (the Determination).
- Some of the qualifications marked as ‘approved’ were not approved qualifications, they were professional designations (e.g. ‘Certified Financial Planner’).
- Some of the qualifications marked as ‘approved’ were not, in isolation, approved qualifications, they were bridging courses. These may be listed in the Determination but are required to be coupled with another qualification to meet the requirements of the professional standard.
- Some of the qualifications marked as ‘approved’ were not approved qualifications under the Determination (examples include: the Financial Adviser Exam, Australian Qualifications Framework 1-5 qualifications, and Regulatory Guide 146 training/qualifications).
ASIC is also aware of instances where AFS licensees have not ensured that the contact details of their financial advisers are up to date.
AFS licensees are urged to immediately check all the information recorded about their financial advisers on the Financial Advisers Register, with a particular focus on the adviser’s approved qualification(s), ability to provide tax (financial) advice services, business address and telephone number. Guidance is available on the ASIC website on how to check an adviser’s qualifications against the Determination and how to determine if an adviser can provide tax (financial) advice services.
Any incorrect or out-of-date information must be rectified by lodging a ‘maintain’ transaction via ASIC Connect. Only one fee applies if multiple pieces of information are updated in a single transaction.
It is a serious offence to knowingly provide false or misleading information to ASIC or to fail to take reasonable steps to ensure that the information provided to ASIC is true and correct. It is also an offence to fail to update the Financial Advisers Register within 30 business days of a financial adviser’s details changing.
From 1 August 2024, ASIC will commence a compliance program to ensure that the information recorded on the Financial Advisers Register about approved qualifications is correct and will consider enforcement action where necessary. This will remain a key focus for ASIC in the lead up to 1 January 2026, when all financial advisers must comply with the qualification standard, either by completing an approved qualification, by completing qualifications the Minister has determined to be equivalent to an approved qualification for existing advisers, or by accessing the experienced provider pathway.
See ASIC media release.
ASIC Key actions and proceedings
- Defunct payday lender penalised $16 million over prohibited fees and deficient systems - Ferratum Australia Pty Ltd (in liquidation) has been ordered to pay a total of $16 million in penalties by the Federal Court for numerous contraventions of the National Consumer Credit Protection Act 2009 (Cth) and the National Credit Code. See ASIC media release.
- ASIC suspends Airrails AFS licence - ASIC has suspended the Australian financial services licence of Airrails Pty Ltd for three months. See ASIC media release.
- ASIC cancels licence of Guildfords Funds Management Pty Ltd - ASIC has cancelled the AFS licence of Guildfords Funds Management Pty Ltd after ASIC found significant and systemic failures of oversight and compliance in Guildfords’ provision of financial services. See ASIC media release.
- Federal Court freezes assets of United Global Capital and Global Capital Property Fund - ASIC has obtained interim orders from the Federal Court freezing the assets of financial advice licensee United Global Capital Pty Ltd (UGC) and related property investment company Global Capital Property Fund Limited (GCPF). ASIC sought the orders to protect investor funds while an investigation is continuing. See ASIC media release.
- Court declares PayPal Australia used an unfair contract term - The Federal Court has declared a term used by PayPal Australia Pty Limited in its standard form contracts with small businesses to be unfair. See ASIC media release.
- ASIC suspends the AFS licence of HLK Group Pty Ltd - ASIC has suspended the Australian financial services licence of HLK Group Pty Ltd (HLK Group) for a period of six months until 27 December 2024. The AFS licence was suspended because HLK Group has currently ceased carrying on a financial services business. See ASIC media release.
Australian Prudential Regulation Authority (APRA)
APRA publishes response to submissions on minor updates to capital framework for ADIs
APRA has released a response to submissions on minor updates to the capital framework for authorised deposit-taking institutions (ADIs).
In the response letter, APRA addresses specific issues raised by the industry on the implementation of the new capital framework for ADIs. The final amendments are minor and technical.
The response letter, prudential standards, prudential practice guides, and reporting standards are available on the APRA website at: Minor updates to capital framework for ADIs.
See APRA media release.
APRA strengthens core prudential standard to support outcomes for members in super
APRA has enhanced a core prudential standard governing strategic planning and member outcomes in superannuation.
The updated Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) and related guidance reinforce trustees’ duty to act in the best financial interests of members. The changes ensure members’ interests are front-and-centre in trustees’ strategic and business planning, financial resource management, implementation of the retirement income covenant and fund transfers.
The revised standard and guidance also set clear expectations for trustees on expenditure. The guidance sets out:
- Design principles for a robust expenditure management framework – including board oversight, alignment to strategic objectives, and active monitoring and review.
- APRA’s view is that better practice is for trustees to obtain a yearly attestation from accountable senior executive management that they are taking reasonable steps to meet the requirements in SPS 515 regarding expenditure management.
- APRA’s view is that such attestation should confirm that controls are in place and operating effectively to prevent expenditures that would be unjustifiable in the context of the duty to act in the best financial interests of beneficiaries.
See APRA media release.
Super trustees urged to strengthen oversight of retirement strategy implementation
APRA and ASIC are calling on superannuation trustees to boost efforts to track and measure the impact of their strategies to improve retirement outcomes for members.
A recent pulse check has shown that while trustees have made good progress, some significant gaps remain a year after a joint APRA and ASIC thematic review identified a lack of urgency by trustees in embracing the intent of the Retirement Income Covenant.
As part of a follow-up survey of the broader superannuation industry, APRA and ASIC asked trustees to share their responses to the recommendations and findings from the thematic review to assist members who are retired or approaching retirement as required under the covenant introduced in 2022.
Key observations from 48 survey responses, representing all trustees invited to participate, include (among other things) that many trustees were taking steps to better understand the retirement needs of their members and had endeavoured to promote the availability and access to retirement-focused information for members. However, only one in five planned improvements identified by trustees were expected to be completed by mid-2024.
The trustees responses pointed to several challenges in implementing the covenant, including uncertainty around the financial advice framework, privacy, security, and cost concerns on collecting more member data, and a lack of member engagement and financial capability.
See APRA media release.
Other regulators
Australian Banking Association Customer Trends 2024-25
The ABA has published its ‘Bank On It: Customer Trends 2024’ report. Key points include:
- Increased banking interactions: Customers are interacting with their banks more than ever before. Between 2019 and 2023 banking interactions grew 37% (from 10 million to 13.7 million) driven by increasing interactions online and through apps.
- Increased adoption of technological change and decreasing use of cash:
- Australian bank customers continue their digital shift, with over 99% of all interactions now occurring via digital channels, with in-person branch interactions rapidly falling by 47% from FY19 to FY23 and phone transactions declining by 26% from FY19 to FY23. In the last year alone, customers of major banks made $126 billion in payments with their mobile wallets, a growth of 35 per cent from the previous year and overtaking total ATM cash withdrawals for the first time.
- Digital payments also continue to grow, with an increase by 39% in online and app interactions from FY19 to FY23 and increase by 1,236% in chatbot interactions from FY19 to FY23.
- In contrast, consumer cash use has substantially declined over the past two decades, with the share of retail payments made in cash decreasing by about 10% year-on-year since 2007.
- Australian bank customers continue their digital shift, with over 99% of all interactions now occurring via digital channels, with in-person branch interactions rapidly falling by 47% from FY19 to FY23 and phone transactions declining by 26% from FY19 to FY23. In the last year alone, customers of major banks made $126 billion in payments with their mobile wallets, a growth of 35 per cent from the previous year and overtaking total ATM cash withdrawals for the first time.
- Scams: Scam reports have trended upwards over the past four years and have reportedly trended down since around June 2023. The National Anti-Scam Centre was launched in July 2023, enabling the sharing of scam intelligence across government, law enforcement and the private sector.
- Consumer data right (CDR): Since the government launched the CDR in 2020, the uptake of CDR remains very low as a small share of customers (less than 1%) ask for their banking data to be shared.
- Hardship support: The ABA says banks stand ready to help those facing financial difficulty, with hardship support increasing throughout early 2024 and growth in mortgage accounts in hardship over the past 12 months. For context, 1 in 20 people say they do not have the money to meet their expenses. 1 in 5 say they can meet expenses without savings.
See the report here.
ABA’s strategic review of the Consumer Data Right (CDR) regime
The ABA has released a report titled ‘Consumer Data Right Strategic Review, July 2024’.
In summary, in the four years since the CDR was launched, the CDR has not resulted in impactful arrangement volumes and is already showing early signs of decelerating growth. Customer engagement with the CDR has been disappointingly low and CDR-enabled innovation has struggled to resonate with consumers.
Key findings of the review include:
- At the end of 2023, only 0.31% of bank customers were using CDR and more than 50% of data-sharing arrangements had been discontinued or allowed to lapse throughout the year. This compares unfavourably with consumer adoption of other digital innovations in banking, such as mobile wallets and PayID which have had materially higher customer update within four years of launching.
- The CDR rollout has required substantial investment from government and industry participants and continues to incur significant ongoing costs. The banking industry alone is estimated to have spent ~$1.5b since 2018.
- Low customer adoption and significant compliance costs are driving unintended outcomes. For example, resourcing requirements for CDR compliance have limited the capacity for other technology investments that are more aligned with customer demand (e.g. payments, apps).
- The banking industry recognises the benefits CDR infrastructure can enable. However, challenges in policy and standards design, and implementation have impeded the CDR’s success. These include unsubstantiated consumer propositions, an absence of a robust cost/benefit governance framework, and excessive complexity and prescriptiveness in compliance obligations.
See ABA media release.
Corporate cases
ASIC v PayPal - a term (pre-9 November 2023) declared unfair and void
On Friday 5 July, the Federal Court declared a term used by PayPal in its standard form contracts with small businesses to be unfair because its effect was to allow PayPal to retain fees that it had erroneously charged if the small business failed to notify PayPal of the error within 60 days of the fee appearing on its account statement.
The Federal Court has yet to publish its written reasons.
PayPal agreed that the term was unfair and consented to the declarations, having voluntarily removed the term from its contracts on 8 November 2023.
The Court declared the unfair term void from the start of the contracts. The declarations affect small businesses that opened a PayPal Business Account between 21 September 2021 to 7 November 2023. As of 30 June 2023, there were over 600,000 small businesses with PayPal Business Accounts.
According to the ASIC media release, there was a hearing on 4 July at which Justice Moshinsky delivered oral reasons, finding that:
- Unlike PayPal, small businesses were not placed in a position where they were able to manage the risk of incorrect charging or overcharging.
- Each small business only had 60 days to notify PayPal in writing of any erroneous deduction of fees or charges in circumstances where the account statements did not describe the various types of fees, or the way they were calculated, in a way that was readily reconcilable with how those fees were described in the PDS.
- PayPal was not aware of any instance where it has caused a consumer to suffer loss or damage by relying on the Fee Error Term and ASIC’s investigation did not uncover any instance of PayPal having done so.
See ASIC media release.
Legislation and proposed legislation
Senate Greenwashing Inquiry final report
Separately, the due date for the Senate Greenwashing Inquiry final report has been pushed back to 20 November 2024.
Climate-related financial disclosure: Bill introduced in the Senate and the second reading moved
On 24 June 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) was introduced in the Senate and the second reading was moved. 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.
G+T Articles
G+T Insight - One-stop digital shop – APRA’s new Prudential Handbook – discusses the news that APRA has launched a Beta version of its new digital Prudential Handbook, which consolidates all APRA policy standards, guidance, and supporting information into a single, searchable platform as part of a broader initiative to modernise the prudential framework - Silvana Wood and Chris Whittaker (26 June 2024)
G+T Insight - Boardroom Brief: Week commencing 1 July 2024 – Justin Mannolini and Cassandra Lee (2 July 2024)
G+T Insight - Balancing transparency and legal protection: Export reports into catastrophic failures – discusses the legal case in which the Federal Court of Australia ruled that legal professional privilege did not apply to an expert report commissioned by Callide Energy Pty Ltd after a catastrophic power unit failure, highlighting the tension between public disclosure for safety improvements and preserving legal privilege for obtaining legal advice – Kon Nakousis and Michal Magat (24 June 2024)
Calendar dates
- 19 July 2024 – Submissions for public consultation on statutory review of meetings and documents amendments to Corporations Act due
- 14 August 2024 – Final report of panel statutory review of the meetings and documents amendments to Corporations Act due
- 14-15 November 2024 – ASIC annual forum
- 1 October 2024 – Report on the independent review of Australia’s credit reporting framework due
- 15 March 2025 – Financial Accountability Regime takes effect for superannuation and insurance bodies
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