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 wins Federal Court case against Cigno Australia and BSF Solutions - see media release .
Member Therese McCarthy Hockey’s remarks to AFIA Risk Summit 2024 - see speech .
APRA sector statistics - see media release .
Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (CTH) - see Bill .
Continuous disclosure review: report tabled in Parliament - see review .
Treasury: 'A future made in Australia' - see media release .
Treasury: Strengthening tax compliance - see media release .
ASIC announces 30 June 2024 focus areas and expanded program to support financial reporting and audit quality - see media release .
ASIC welcomes Ministerial determination to progress competition in clearing and settlement reforms - see media release .
ASIC issues information for unlicensed entities making unsolicited contact with consumers - see information sheet .
ASIC: repeal and amendment of various instruments - see media release .
ASIC’s Financial Reporting and Audit Surveillance Program - Speech by ASIC Commissioner Kate O’Rourke at the CA ANZ Audit Conference 2024, 16 May 2024 - see speech .
ASX Compliance Update - 06/24 - see update .
Sequoia Financial Group Limited - Panel Receives Application - see media release .
APRA grants new general insurance licence to Everest International Reinsurance - see media release .
AUSTRAC and SkyCity agree to proposed $67 million penalty - see media release .
IOSCO welcomes IESBA’s consultation on the Proposed International Ethics Standards for Sustainability - see media release .
Continuous Disclosure Review Tabled - see media release .
G+T Insight - Digital ID Act 2024 - Leslie Sutton and Emilie Williams (23 May 2024)
G+T Insight - Cryptoassets - Law Over Borders Comparative Guide 2024 - Peter Reeves and Robert O’Grady (13 May 2024)
ASIC
ASIC wins Federal Court case against Cigno Australia and BSF Solutions
The Federal Court has found that Cigno Australia Pty Ltd and BSF Solutions Pty Ltd engaged in credit activity without an Australian Credit Licence and charged consumers prohibited fees. The Court also found that Cigno Australia director Mark Swanepoel and BSF Solutions director Brenton Harrison were involved in unlicensed activity and other Credit Act breaches.
ASIC Deputy Chair Sarah Court said, "ASIC has taken regulatory and enforcement action over many years to respond to various business models used by entities connected to Cigno Australia, BSF Solutions, Mr Swanepoel and Mr Harrison".
"We took this action because we were concerned that the Cigno Australia and BSF Solutions 'No Upfront Charge Loan Model' provided short-term loans totalling over $34 million and charged over $70 million in fees to more than 100,000 consumers between July 2022 and December 2022".
The Court made orders restraining Cigno Australia and BSF Solutions from recovering any further fees, charges or other amounts (including late payment fees and amounts of principal).
The matter is listed for a further case management hearing on 21 June 2024 for the consideration of further relief against the respondents including adverse publicity orders and civil penalties.
Background
On 3 October 2023, ASIC began civil penalty proceedings in the Federal Court against Cigno Australia and its director Mark Swanepoel as well as BSF Solutions and its director Brenton James Harrison for allegedly providing credit without a licence (23-266MR).
Cigno) and BHF Solutions Pty Ltd (BHF), parties related to the above defendants, who operated a 'Continuing Credit Model' between October 2019 and March 2020.
In June 2022, the Full Federal Court found that this lending model was unlawful and that these parties had engaged in credit activities without holding an Australian credit licence. In July 2023, on remittal, the Federal Court granted declarations and injunctions against Cigno and BHF (22-158MR).
Judgement and ASIC media release
ASIC Corporate Finance Liaison Meeting: May 2024
At the ASIC Corporate Finance Liaison Meeting on 22 May, ASIC informed participants, among other things, that:
Due to the volume of information it wishes to convey to the market, from June 2024, it will issue corporate finance updates on a bi-monthly basis (these have been issued quarterly to date).
Further consultation regarding the implementation of a public beneficial ownership register, which will show who ultimately owns, controls or receives profits from a company or legal vehicle, is likely to take place later this year and, as part of the 2024-25 federal Budget, ASIC had been allocated funds to support the proposed new regime. ASIC will provide updates on its oversight of this regime in the years to come.
ASIC announces 30 June 2024 focus areas and expanded program to support financial reporting and audit quality
ASIC has outlined an expanded program of work for 30 June 2024, comprising:
Continuance of ASIC’s pro-active financial reporting and audit surveillance program which covers listed companies, other public interest entities, and previously grandfathered large proprietary companies, with the addition of superannuation funds from 30 June.
New review of auditors’ compliance with ethical and independence standards, including some preliminary observations about compliance with Auditing Standard ASQM 1
Focus Areas for 30 June 2024
Enduring areas of focus include:
Asset values;
Adequacy of provisions;
Subsequent events; and
Disclosures.
prepare and put into place the necessary governance arrangements; and
consider what capabilities and data requirements may be needed to comply with mandatory climate reporting reforms.
ASIC Corporations (Derivative Clearing Exemption) Instrument 2018/209 as the exemption arrangement in this instrument has been formalised in the ASIC Derivative Transaction Rules (Clearing) 2015;
ASIC Corporations (Extended Reporting and Lodgment Deadlines - Unlisted Entities) Instrument 2020/395 (Instrument 2020/395); and
ASIC Corporations (Extended Reporting and Lodgment Deadlines - Listed Entities) Instrument 2020/451 (Instrument 2020/451).
Surveillance coverage
Superannuation funds will be included in the program.
Superannuation trustees (for the first time) are required to lodge audited financial reports for most superannuation funds with ASIC. Trustees will need to lodge within three months of the end of the fund’s 2023-24 financial year.
Large proprietary companies will continue to be required to lodge audited financial reports with ASIC (for the second year).
Many grandfathered companies exempted from lodging financial reports with ASIC will be included in the surveillance program and follow-up instances where non-compliance and non-lodgement occur.
Climate-related risks
Enduring areas of focus include:Directors of entities that are required to prepare financial reports under Chapter 2M of the Corporations Act 2001 are urged to:
Asset values;
Adequacy of provisions;
Subsequent events; and
Disclosures.
prepare and put into place the necessary governance arrangements; and
consider what capabilities and data requirements may be needed to comply with mandatory climate reporting reforms.
ASIC Corporations (Derivative Clearing Exemption) Instrument 2018/209 as the exemption arrangement in this instrument has been formalised in the ASIC Derivative Transaction Rules (Clearing) 2015;
ASIC Corporations (Extended Reporting and Lodgment Deadlines - Unlisted Entities) Instrument 2020/395 (Instrument 2020/395); and
ASIC Corporations (Extended Reporting and Lodgment Deadlines - Listed Entities) Instrument 2020/451 (Instrument 2020/451).
Consolidated entity disclosure statement requirement
All listed and unlisted public companies are to include a new “consolidated entity disclosure statement” in their financial reports. The new disclosure statement requires details of all consolidated entities as at the end of the financial year - names, ownership interests, place of incorporation, and tax residency.
Review of auditors’ compliance with ethical and independence standards
ASIC will review how auditors are complying with auditor independence requirements in the Corporations Act 2001, as well as ethical and independence requirements contained in the Australian Auditing Standards.
ASIC Commissioner, Ms O’Rourke said: "Our initial observations on the firms" implementation highlighted several areas for concern which span across risk, governance, and compliance practices at audit firms. ASIC urges firms to be transparent in reporting to executive management and relevant committees around deficiencies and their associated action plans from a governance and oversight perspective. This includes communicating the original rating of a deficiency in addition to the point-in-time rating to ensure broader design gaps are being identified and systems operate as effectively as possible".
ASIC is in the process of scoping further work around systems of quality management work and plans to undertake the review in the 2024-25 financial year.
See ASIC media release .
ASIC welcomes Ministerial determination to progress competition in clearing and settlement reforms
Corporations and Competition (CS Services) Instrument 2024 CS ) services relating to cash equities.
Regulatory Expectations) as enforceable obligations.
The Regulatory Expectations apply to ASX’s engagement with, and provision of services to, users of its monopoly cash equity CS services. The Regulatory Expectations are intended to support the long-term interests of the Australian market by delivering outcomes that are consistent with those that might be expected in a competitive environment, by:
ensuring that ASX remains responsive to users’ evolving needs, including its governance framework; and
providing access to its cash equity CS services on a transparent and non-discriminatory basis with terms and conditions, including pricing, that are fair and reasonable.
ASIC intends to consult on draft CS services rules to deliver these outcomes in July this year.
See ASIC media release.
ASIC issues information for unlicensed entities making unsolicited contact with consumers
Unsolicited contact leading to financial advice INFO 282 ), which outlines how financial services laws apply to an unlicensed entity referring consumers to a third party for the provision of financial advice.
These entities must comply with financial services laws. If they don’t, they risk substantial penalties.
AFS) licensees and financial advisers who receive consumer details obtained through unsolicited contact.
The publication sets out the requirements:
under the law;
when making unsolicited contact; and
when making digital contact.
The release of this information sheet forms part of ASIC’s broader work to minimise consumer harm caused by cold-calling business models using high-pressure sales tactics and online click-bait advertisements to lure consumers into receiving often inappropriate superannuation switching advice.
View: INFO 282 Unsolicited contact leading to financial advice .
ASIC: repeal and amendment of various instruments
ASIC Corporations (Amendment and Repeal) Instrument 2024/229 (Instrument 2024/229
Enduring areas of focus include:Directors of entities that are required to prepare financial reports under Chapter 2M of the Corporations Act 2001 are urged to:Repeals the following ASIC instruments:
Asset values;
Adequacy of provisions;
Subsequent events; and
Disclosures.
prepare and put into place the necessary governance arrangements; and
consider what capabilities and data requirements may be needed to comply with mandatory climate reporting reforms.
ASIC Corporations (Derivative Clearing Exemption) Instrument 2018/209 as the exemption arrangement in this instrument has been formalised in the ASIC Derivative Transaction Rules (Clearing) 2015;
ASIC Corporations (Extended Reporting and Lodgment Deadlines - Unlisted Entities) Instrument 2020/395 (Instrument 2020/395); and
ASIC Corporations (Extended Reporting and Lodgment Deadlines - Listed Entities) Instrument 2020/451 (Instrument 2020/451).
Instruments 2020/395 and 2020/451 are being repealed as they gave temporary financial reporting relief because of the impacts of the 2019 coronavirus disease (COVID-19) that applied to financial years ending in 2021 and 2022 and the relief therefore has no ongoing effect.
See ASIC media release .
ASIC’s Financial Reporting and Audit Surveillance Program - Speech by ASIC Commissioner Kate O’Rourke at the CA ANZ Audit Conference 2024, 16 May 2024.
ASIC Commissioner Kate O’Rourke emphasised the importance of strong financial reporting and audit oversight, highlighting ASIC’s risk-based approach and transparency efforts.
The 2022-2023 surveillance found issues in business risk disclosure, asset impairment, and revenue recognition, leading to significant financial adjustments. ASIC’s focus for the June 2024 reporting period includes asset values, provisions, and expanding surveillance to large proprietary companies and superannuation entities.
O’Rourke also discussed preliminary observations on audit firms' quality management, urging improvements.
Lastly, she supported the proposed mandatory climate reporting reforms and emphasised the need for companies to prepare for future disclosure requirements.
Please see the full speech here .
ASIC Key actions and proceedings
APRA
Member Therese McCarthy Hockey’s remarks to AFIA Risk Summit 2024
Member Therese McCarthy Hockey represented APRA at the AFIA Risk Summit.
In her speech, she addressed the transformative impact of generative AI in the finance sector, underlining both its potential and associated risks. Stressing the importance of cautious consideration and robust governance, McCarthy highlighted the need for proactive risk management strategies to mitigate potential downsides such as job displacement, ethical dilemmas, and financial instability. She emphasised the pivotal role of human oversight and accountability in navigating the AI landscape responsibly, advocating for a balanced approach that fosters innovation while ensuring compliance with evolving regulatory frameworks.
McCarthy's insights underscore the critical importance of understanding AI's complexities and leveraging its capabilities judiciously within the finance and corporate advisory law domain to effectively manage risks and drive sustainable growth.
See the full speech here .
APRA sector statistics
APRA releases quarterly private health insurance statistics for March 2024 - see APRA media release .
APRA grants new general insurance licence to Everest International Reinsurance
APRA has licensed Everest International Reinsurance Ltd as a general insurer (GI) under the Insurance Act 1973.
An updated register of APRA-authorised general insurance can be found on the APRA website.
See APRA media release .
ASX
Compliance Update - 06/24
On 16 May, the ASX provided a new Compliance Update. The key points include:
New data breach example in Guidance Note 8
Nomination of external director candidates for election at AGM
New data breach example
ASX has prepared a new data breach example that will be included in Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 - 3.1B.
ASX has developed the example having regard to market feedback about common disclosure issues that arise during a cyber incident. The example illustrates how existing ASX policy applies to a hypothetical data breach scenario, and includes commentary on the application of the Listing Rule 3.1A exception, the contents of announcements, how ASX approaches confidential engagement with regulators, and the use of trading halts and voluntary suspensions.
A mark-up comparing the updated Guidance Note to the current version is available here .
The updated Guidance Note will take effect from 27 May 2024. The revised Guidance Note will be able to be accessed via ASX Online or the ASX Listing Rules page on the ASX website.
Nomination of external director candidates for election at AGM
Listing Rule 14.3 requires a listed entity to accept nominations for the election of directors up to 35 business days before the date of the annual general meeting unless the entity’s constitution provides otherwise.
This rule ensures that there is certainty about the period when candidates for election as a director can be nominated and provides a reasonable opportunity for them to be nominated.
ASX is aware that in some industries an entity must obtain approvals from regulatory authorities before a candidate can be formally appointed as a director. Entities in these industries may have constitutions that provide that a person is not eligible for election as a director unless all necessary approvals have been obtained.
See ASX media release .
AUSTRAC
AUSTRAC and SkyCity agree to proposed $67 million penalty
SkyCity Adelaide Pty Ltd (SkyCity) and AUSTRAC have filed joint submissions with the Federal Court of Australia, proposing a $67 million penalty over the casino’s contravention of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).
A court hearing has been set down for 7 June 2024, at which Justice Lee will consider the parties’ proposed settlement.
While AUSTRAC and SkyCity agree that a $67 million penalty is appropriate in all the circumstances, it is a matter for the court to determine the appropriate penalty.
In reaching this agreement, SkyCity has admitted that it operated in contravention of the AML/CTF Act, including that:
its AML/CTF Programs did not meet the requirements of the AML/CTF Act and AML/CTF Rules, in contravention of section 81.
it did not carry out appropriate ongoing customer due diligence concerning certain higher-risk customers and customers transacting through higher-risk channels, in contravention of section 36.
“AUSTRAC took this action out of concern that SkyCity’s conduct meant that a range of high-risk practices, behaviours and customer relationships were allowed to continue unchecked for many years”, AUSTRAC’s Chief Executive Officer, Brendan Thomas said.
Mr Thomas said the action serves as an important reminder to casinos and the gaming sector to take their AML/CTF obligations seriously and be vigilant to money laundering and terrorism financing risks.
As the matter is before the court for determination, AUSTRAC is unable to comment further on the proceedings.
See AUSTRAC media release .
Other bodies and regulators
IOSCO welcomes IESBA’s consultation on the Proposed International Ethics Standards for Sustainability
IOSCO, on 10 May 2024, congratulated the International Ethics Standards Board for Accountants (IESBA) on achieving an important milestone by publishing for consultation their Proposed International Ethics Standards for Sustainability Assurance (IESSA) and Other Revisions to the Code Relating to Sustainability Assurance and Reporting (the Paper).
IOSCO also acknowledged IESBA’s extensive outreach program conducted during the exposure draft development and during the consultation period.
Based on its review of the Paper and additional stakeholder engagement, IOSCO outlined its general observations and its six key priority areas for IESBA’s consideration in developing its final standard:
Definition of sustainability information
Scope of International Independence Standards
Non-compliance with laws and regulations
Group Sustainability Assurance engagements
Value Chain
Transparency when reporting on PIEs
See IOSCO media release .
Continuous Disclosure Review Tabled
The AICD notes that the independent review of Australia’s continuous disclosure regime has been tabled in the Federal Parliament. The review has examined important aspects of the continuous disclosure obligations contained in the Corporations Act.
While finding that not enough time has elapsed to comprehensively assess the impact of reforms introduced in 2021, the report finds meritorious continuous disclosure class actions are likely to proceed and concludes there is no evidence of an urgent or compelling need to repeal the 2021 amendments. The AICD supports this central finding of the review.
The AICD believes the reforms have struck the right balance and the retention of a fault element is entirely appropriate, ensuring that directors and companies should only be liable in private proceedings for breaches of continuous disclosure law where they are found to have acted with 'knowledge, recklessness or negligence'.
The planned introduction of a complex new mandatory climate reporting regime and the increasing prevalence of cyber security and data breach incidents are examples of the heightened liability risks faced by directors and boards.
See AICD media release .
Legislation and proposed legislation
Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (Cth)
The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (Cth) (the Bill) proposes to amend the legislation listed in the Bill. The second reading speech occurred on 30 November 2023. The Bill remains before the House of Representatives.
The Bill includes changes to the Financial Regulator Assessment Authority Act 2021 (Cth) to reduce the frequency of certain periodic reviews, the Corporations Act 2001 (Cth) to provide four licensing exemptions for foreign financial services providers, and the Payment Systems (Regulation) Act 1998 (Cth) and four other Acts about the payments regulatory framework.
See the Bill here and its Explanatory Memorandum .
Continuous disclosure review: report tabled in Parliament
The final report of the independent review of the changes to Australia's continuous disclosure laws was tabled in both houses of Parliament on 14 May 2024. This satisfies the requirements for the completion and tabling of the review under section 1683B of the CA 2001.
The review was completed by Dr Kevin Lewis, previously chief compliance officer at ASX Limited and the final report was received by the government on 13 February 2024.
The government is currently considering Dr Lewis's report.
See the final report here .
Corporate cases
Privilege waived for documents voluntarily disclosed to ASIC: ASIC v Noumi Ltd (2024) FCA 349
Key takeaway
Voluntary disclosure of privileged material to ASIC, under a voluntary disclosure agreement, risks waiver of that privilege.
Background
ASIC brought proceedings against Noumi (D1), Mr Macleod (D2 , former CEO of Noumi) and Mr Nicholas (D3 , former CFO of Noumi) for alleged contraventions of CA 2001 related to accumulating large amounts of unsaleable inventory, which had not been properly recorded/accounted for.
Jackman J made orders for the production of 4 tranches of documents by informal discovery.
Noumi claimed privilege over 135 of the documents, of which Mr Macleod disputed 53 of these documents.
On 15 September 2023, Jackman J directed that another judge determine the privilege dispute.
By the time of the hearing of the privilege dispute, only 15 contested documents remained.
Privilege dispute
The main document in dispute was a report prepared by PwC entitled ' Freedom Foods Group Limited - Investigation Report ' dated 28 September 2020 (PwC Report)
Mr Macleod submitted that the privilege of the PwC Report was waived by:
ASX announcements which conveyed parts of the conclusion of the PwC report.
Key Findings
The PwC Report was privileged, brought into creation for the dominant purpose of Noumi being provided with legal advice (in relation to the inventory issue, accountability, and causal issues).
Noumi’s conduct in voluntarily disclosing the PwC Report to ASIC, pursuant to the VDA, was inconsistent with the maintenance of confidentiality of the PwC Report
Waiver of privilege - key factual findings
The subject of the advice, the inventory issue, was significant resulting in the announcement of $60 million in write-downs in its accounts.
Noumi knew that the PwC report would impart more than legal advice - it would include PwC’s findings about the allegations concerning Mr Macleod and relevant evidence about those allegations.
Waiver of privilege - key facts
At paragraph 199 , Shariff J found:
“Although there was at that time no statutory investigation on foot and no powers of compulsion were being exercised, I am satisfied that it was in Noumi’s reasonable contemplation, given the seriousness of the matters being raised with ASIC, that ASIC would consider all information provided to it in its determination of an appropriate regulatory response as against both Noumi and Mr Macleod."
“[T]he legal and practical consequence of the disclosure of the PwC Report was to permit ASIC to use the information contained in the Report as against Mr Macleod, including, as discussed further below, permitting ASIC to have derivative use of that information in proceedings against Mr Macleod."
Waiver of privilege - conclusion
Noumi’s disclosure of the PwC report, particularly permitting ASIC to use it in a derivative way against Mr MacLeod in proceedings that could be brought against him, was inconsistent with the maintenance of privilege. Even though ASIC was unable to use the PwC Report as evidence in proceedings or disclose it to any third party, ASIC was still placed in a position where (if it so wished) it could seek to elicit any of the relevant evidence in the PwC Report by derivative means.
See Judgment .