Australian Regulators Weekly Wrap — Monday, 27 February 2023

27 February 2023
Liam Hennessy, Partner, Brisbane

Keeping on top of the latest financial services regulatory & 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 forefront of your practice by quickly setting out the top 5 developments from the past week, analysis and practical considerations for the future.

  1. RACQ: ASIC has commenced civil penalty proceedings in the Federal Court alleging RACQ Insurance Limited (RACQ) misled customers in its PDSs about the pricing discounts between February 2017 and March 2022. The discounts were only applied by RACQ to the base insurance premium, and not to additional premiums paid for certain optional extras, which ASIC alleges is misleading. Pricing issues are an industry-wide issue – most insurers are considering these matters, and all things ‘cupping’ etc – though RACQ have perhaps been more publicly engaged on this front. I received this email, as a RACQ member for example: “The Club had initially identified and self-reported a significant matter to ASIC With support from KPMG, a diligent review process also found other matters where members did not receive the full benefit of discountsThe total refund to members, across all pricing promises matters, is estimated to be in the range of $200–$220 millionThe majority of refunds relate to the optional covers’ disclosure matter and will date back to March 2015. Up to 500,000 members will receive refunds because our disclosures were incorrect.”
  2. Senate hearing on crypto (Parliament): Appearing on Tuesday, we made the narrow point that crypto is not legally property, rather data, which appeared to get some traction (we will see!). We differed from Blockchain Australia slightly insofar as timing i.e. our read of the situation is that regulation needs to happen sooner rather than later, including on tax. I am adopting a cynical realpolitik view though I need to qualify. BA are 100% correct, and sensible in noting that the position needs to be calibrated well. My concern is that with the ATO saying they are 9 months delayed in their report (see page 11 of the Hansard), I can’t see our policymakers standing still in that time. We can refine the details later on, and build on the certainty we can gain now while we have senior policymaker attention. That is not a given. I do qualify that position, however, when it comes to the definition of digital asset as that defines the entire regulatory perimeter we have. We met up with Sen. Bragg’s policy people, who said that they will adopt the UK definition of digital asset as advocated in our submission. I think that it is better than the EU’s MiCA, and will give us a more nuanced approach. The second iteration of Bragg’s bill will come out soon – it is currently with the OPC – and while Treasury aren’t obligated to pick it up, they certainly won’t be able to ignore it!
  3. Super ‘ask the regulators’ (APRA): With thanks to a former employee now kicking goals in-house, AFSA’s ‘ask the regulators’ session contained the following insights. APRA’s focus: cyber breaches and fraud — CPS 234 assessments (across 4 tranches), APRA entities will be assessed by end of this year – member outcomes, consulting on enhancements of prudential standards (investment governance standard, stress testing etc), fund underperformance such as MySuper products performance tests and an emphasis on transparency, retirement income covenants – governance, and desire of APRA to see proactive measures of fund trustees etc. ASIC’s focus points: measures it will seek to see is how super acts in relation to the members (ie to protect the members, etc) regarding cyber issues and how are trustees dealing with members — balance regarding info/security etc, how super are putting members at centre e.g. IDR data and how super treat members when things go wrong. This is an area that needs to improve (need a root cause analysis of the issue, what can be done), to get credibility in the super system, working with AFCA regarding disclosures and finally, ‘hiding under legal positionsneeds to improve. ATO focus points: cyber and fraud – opportunities to strengthen controls – how super respond to member reporting — timely reporting, level of confidence ATO and people have in the system – quality of member data, and guarantee compliance.
  4. Credit contracts (Treasury): Treasury has issued draft National Consumer Credit Protection Amendment (Financial Sector Reform) Regulations 2023 to enhance the consumer protection framework for small amount credit contracts. It includes adding an additional requirement that licensees verify the financial situation of consumers before entering into a contract with them, consumer income requirements for both SACCs and consumer leases for household goods, anti-avoidance measures targeted at avoidance purposes relating to credit contracts and product intervention orders, and the prescription of new civil penalties subject to the Act infringement notice regime. It coincides with the Treasury releasing a supplement to the Financial Sector Reform Act 2022, to insert provisions regarding the prohibition to avoid relevant credit product intervention orders in the Corporations Act 2001 (Cth). Not an unsurprising change – DDO / PIP is ASIC’s current favourite tool given its effectiveness, so fine tuning is inevitable.
  5. Legislating purpose of super (Treasury): Treasury is seeking feedback on its consultation paper ‘Legislating the objective of superannuation’. The Paper proposes to codify an objective or purpose of superannuation in either standalone legislation or within the existing Superannuation Industry (Supervision) Act 1993. The theory is that legislating an objective of superannuation will provide stability and confidence to policy makers, regulators, industry, and the community, that changes to superannuation policy will be aligned with the purpose of the superannuation system. The proposed objective is ‘The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way‘. Importantly, however, it is not intended to impact regulatory supervision activities will be separate to trustees’ fiduciary duties such as the best financial interests duty and the sole purpose test. The objective is not intended to guide the regulation of trustees’ conduct, so should not change trustee obligations.

Thought for the future: Last week I waxed lyrical about ASIC’s regulatory timetable, though this week US SEC Commissioner Gensler has upped the ante with his useful (if slightly puzzling) YouTube video on crypto staking/securities. Honestly, in whatever format it is delivered, more guidance from regulators on the complex issues regulated entities are having to navigate this year is critical.

Published on Australian Regulators Weekly Wrap

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Authored by:

Liam Hennessy, Partner

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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