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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.
I have now spent a bit of time on the new crypto bill. By way of reminder, on 19 September 2022, Senator Andrew Bragg released a draft private member’s bill, entitled the Digital Assets (Market Regulation) Bill 2022 (Bill). Under the Bill, a licence is required to carry out the following activities in Australia: operate a digital asset exchange; provide a digital asset custody service; or, issue stablecoins. For the protection of national security and in the interests of transparency, the Bill imposes a reporting requirement on banks facilitating the e-Yuan. The Bill takes place against the Token Mapping exercise the Government is engaged in, and the RBA’s CBDC pilot.
It will serve the aim of increasing pressure on the Albanese Government, who are focusing their energies on token mapping when Australian crypto businesses really need to be provided with clear rules. As a country we’re losing ground to the US, UK and Singapore while we dither.
It is a poorly drafted bill for a number of reasons:
In summary, it is a political bill that is designed to advance the discussions around crypto regulation — which is a good thing, while the Albanese Government is myopically focusing on token mapping — but a poor piece of policymaking which a critical industry deserves better. The legislation will be difficult and expensive for the industry to absorb by virtue of the multiple new licensing requirements, capital requirements, and very broad undefined principles-based elements. It is a blunt trauma instrument, when we need a scalpel to separate the good from the bad operators and encourage the fledgling industry against its global competition.
My preference in the coming period would be for there to be enough constructive engagement with all of the industry to identify the aspects of their models that are clearly in need of an uplift, give them time to get that uplift right, without negatively affecting them during a recession.
The Council of Financial Regulators released a paper on potential policy responses to address the problem of de-banking in Australia.
The Treasury is now considering the following proposals made by them:
Misleading & deceptive conduct (ASIC)
ASIC has launched legal action against Latitude Finance Australia and Harvey Norman Holdings Ltd over the promotion of interest free payment methods. From January 2020 to August 2021, advertisements promoting ‘no deposit’, ‘interest free’ payment methods over a specified term for purchases at Harvey Norman were allegedly misleading because they did not disclose that consumers could only use the interest free payment method if they applied for and used a Latitude GO Mastercard. Additionally, they failed to adequately disclose establishment fees and monthly account service fees.
An interesting development, and one sure to be watched closely. In my view, fees are not interest, and it is fine to conditionally advertise ‘interest free’ if certain conditions are met. I do understand where ASIC is coming from, as while the advertisement may be technically correct the surrounding context may make it misleading.
In Australian Competition and Consumer Commission v TPG Internet Pty Ltd, the Court clarified that the central question is whether the impugned conduct, viewed as a whole, has a sufficient tendency to lead a person exposed to the conduct into error (that is, will they form an erroneous assumption or conclusion about the matter).
As additional guidance, and because it is such an important topic, the Courts have also indicated that; (a) conduct is likely to mislead or deceive if there is a real/not remote chance or possibility of it doing so, (b) it is not necessary to prove an intention to mislead or deceive, (c) it is unnecessary to prove that the conduct in question actually deceived or mislead anyone, (d) it is not sufficient if the conduct merely caused confusion though, (e) if the conduct in question is directed to the public (or a section of the public), the Court will consider the likely effect on an ordinary and reasonable person in the relevant class to whom the conduct is directed.
ASIC has some very broad grounds to play within here, in conducting its action.
The Parliamentary Joint Committee on Corporations and Financial Services began an inquiry into corporate insolvency in Australia. The terms of reference is quite broad, covering everything from how recent reforms are going, to the impact of COVID-19 to whether we need to change unfair preference laws. There has been a lot of tinkering with the insolvency laws in recent years, which is wholly unsurprising, given the economic circumstances caused by COVID-19. Expect things to swing more in debtors’ favour as a recession looms.
APRA has released a paper on how super trustees can improve management of outsourcing arrangement. APRA’s review, conducted between February 2019 and October 2021, involved an in-depth review of the management of outsourcing arrangements across a sample of 10 retail superannuation trustees.
APRA’s key observations focus on three areas:
As part of the FCA’s Consumer Investments Strategy the FCA have said that they want to establish a simplified advice regime for mainstream stocks and shares ISAs where the risks to consumers are relatively low. The same should be done in Australia, where we are suffering from a financial industry decimated in the wake of the Royal Commission. Personal advice needs to be broken down further.
Published on Australian Regulators Weekly Wrap.
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Liam Hennessy, Partner