Australian Regulators Weekly Wrap — Monday, 1 November 2021

1 November 2021
Liam Hennessy, Partner, Brisbane

Keeping on top of the latest financial services regulatory and compliance trends?

Investing time in your professional development within a rapidly changing financial services industry is challenging. To meet that challenge, the Australian Regulators Weekly Wrap is designed to keep you at the forefront of your practice by quickly setting out the top five developments from the past week, analysis and practical considerations for the future.

  1. FAR (Treasury): Treasury has introduced the final tranche of legislation to implement the Hayne Royal Commission recommendations, including Financial Accountability Regime (FAR), which is designed to extend the Banking Executive Accountability Regime to all APRA‑regulated entities. In essence, FAR requires financial services firms to identify senior individuals by a mixture of prescriptive and principles-based guidance e.g. directors/C-suite executives have them record their responsibilities in ‘accountability statements’, and then conduct those responsibilities by reference to certain broad obligations e.g. they need to act with ‘integrity, honesty and due care, skill and diligence’. If they do not, then the corporation and individual can be subject to sanctions e.g. disqualification for the individual. FAR also imposes remuneration conditions, including the deferral of up to 40% of variable remuneration for four years as hostage against executives’ good behaviour. The draft legislation was released in July 2021 (read our summary here), and had a number of issues with it which we lobbied the Government on. For example, the breadth of the end-to-end product role, breadth of the regulatory directions power and double jeopardy elements (please contact us if you would like a copy of our submission to Treasury). We are spending the weekend going over the new legislation, and identifying the changes and impacts for our key clients (a number of whom we are assisting with FAR already) — please get in touch if you wish to know more!
  2. Compensation scheme of last resort (Treasury): Treasury has also released legislation which establishes the Compensation Scheme of Last Resort. The scheme will facilitate the payment of limited compensation to eligible consumers who have received a determination for compensation from the AFCA which remains unpaid. They will be eligible to receive up to $150,000 in compensation for personal advice, credit intermediation, securities dealing and credit provision where AFCA has ruled in their favour, and the licensee has not paid e.g. because of insolvency.
  3. ASIC Corporate Report (ASIC): ASIC has released a report which provides an update on its work undertaken between 1 July and 30 September 2021. There is no new information in here, though a good run down of its focus in recent times, including all the enforcement work it has been doing. For example, focus on addressing consumer harms in insurance i.e. TPD policies, and penalty on sale of travel insurance policies i.e. Allianz. It also covers the recent actions against ME Bank and NAB for misleading and deceptive conduct — expect that area to be a continuing theme with the new breach reporting regime — and Westpac for failing to act in clients’ best interests. The overall theme is one of many and varied enforcement action, with most signs pointing to that continuing in the short to medium term.
  4. Freedom Insurance (ASIC): ASIC has commenced civil penalty proceedings against Keith Cohen, the former Managing Director of Freedom, and Robert Oayda, a former Quality Control Manager, in relation to sales incentive programs offered by Freedom Insurance Pty Ltd (in liquidation). Mr Cohen and Mr Oayda allegedly were involved in decisions that saw sales agents qualify for overseas holidays if they reached certain sales targets and a Vespa scooter if they made the most sales. ASIC alleges these incentives influenced the sales agents’ conduct and made driving the sale their focus, rather than customer needs. It is seeking declarations, civil penalties, injunctions and disqualification orders against Mr Cohen, and declarations and injunctions against Mr Oayda. A longstanding issue for ASIC, conflicted remuneration cases are likely to increase in my view given the new mortgage brokers’ BID regime expansive prohibitions.
  5. Privacy reform (Treasury): Treasury has released the exposure draft of the Privacy Legislation Amendment (Enhancing Online Privacy and Other Measures) Bill 2021 and a Discussion Paper on the review of the Privacy Act 1988 (Cth) (Privacy Act). Together, they represent big leaps forward in the privacy space, as the legislation establishes a framework for the development of a binding Online Privacy Code that would stipulate how social media services, data brokerage services and large online platforms should comply with the existing broad Australian Privacy Principles and also impose some additional compliance obligations on those organisations; it strengthens the enforcement options available to the Commissioner, by mirroring the maximum civil penalties available under the Privacy Act with those that apply under the Australian Consumer Law; and, it amends the extraterritorial application of the Privacy Act to foreign organisations by removing existing ‘Australian link’ test. The Discussion Paper is going to continue the privacy reform agenda in big way, as it proposes changes to the definition of ‘personal information’ to broaden its scope; stricter requirements to ‘anonymise’ rather than merely ‘de-identify’ information before it is no longer subject to the legislation; an enhanced transparency and consent obligation; new requirements to ensure that personal information is collected, used and disclosed in a way that is ‘fair and reasonable’ taking into account individual expectations, the sensitivity of the information concerned, foreseeable risks that may arise, and other legislated factors; new rights for individuals to object to the collection, use or disclosure of their information and to request the erasure of that information in certain circumstances; a right for individuals to object to any collection, use or disclosure of personal information for direct marketing purposes; and, a wider range of enforcement options for the Information Commissioner, including the ability to apply for lower civil penalties or issue infringement notices for less serious breaches, as well as direct rights of actions for individuals in certain circumstances. The Discussion paper also proposes an industry funding model for the Information Commissioner, including a statutory levy that would apply to entities which operate in a high privacy risk environment. Some significant changes which have been a longtime coming!

Thought for the future: Privacy has long been slated for the reform agenda, with the framework lagging the Consumer Law and Corporations Act in terms of its structure and enforcement framework. Post the Hayne Royal Commission Reforms, between privacy and the ALRC’s review of Chapter 7 of the Corporations Act, it does not look like the reforms will slow down much!

Published on Australian Regulators Weekly Wrap

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Authored by:

Liam Hennessy, Partner

Get in touch with the Gadens team to discuss any regulation and compliance issues.

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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