Australian Regulators Weekly Wrap — Monday, 3 October 2022
3 October 2022
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.
- Remediation plan (ASIC): ASIC has released its new remediation guidance, RG 277. Mandatory reading for anyone who deals with breach reporting, and fixing the problems that arise up, RG 277: clarifies nine principles for conducting a remediation, which will help licensees comply with their obligations and conduct remediations efficiently, honestly and fairly e.g. ‘give consumers the benefit of the doubt, and minimise the risk of under-compensation’; provides 28 examples to assist in the practical application of the guide; introduces guidance on the use of assumptions; introduces updated product specific guidance on possible monetary and non-monetary remedies; updates guidance on the use of a low value compensation threshold and payment channels; and, introduces guidance on what to do if a consumer cannot be contacted or paid. I think it is a really useful guidance from ASIC, and will assist in structuring robust remediation plans — expect ASIC to judge any that are put before it against this guide!
- CBDC (RBA): The Reserve Bank is collaborating with the Digital Finance Cooperative Research Centre (CBDC) on a research project to explore use cases for a central bank digital currency in Australia. You can read the white paper here. The project will also be an opportunity to further understanding of some of the technological, legal and regulatory considerations associated with a CBDC. I am very excited about the potential for CBDCs, given the proportion of the world which is excluded from the financial services system — CBDCs can overcome that inequality by allowing central banks to transact with consumers directly through their crypto wallets. They can also vastly decrease the cost of the payments system, deal a serious blow to the black economy and assist in innovative capital raising and financing projects. It is an excellent initiative for the RBA. For more detail, see my slides from a conference earlier this month exploring CBDC use for pacific island nations, or this article in The Chainsaw here.
- TMDs (ASIC): ASIC has made an interim stop order preventing Australasian Property Investments Limited (APIL) from offering or distributing the APIL Essential Retail Income Fund to retail investors because of a non-compliant target market determination. The Fund is invested in two shopping centres and is currently raising money to purchase a third shopping centre. The Fund borrows money to support its investment activities and investors in the Fund cannot withdraw their money until April 2029. The target market for the Fund includes investors: looking to invest in commercial properties with the prospect of capital growth and a secure income stream; who are ‘cash rich’ entities or retirees looking for a long-term capital investment along with a monthly return; with a ‘buy and hold’ strategy and do not require immediate access to capital; and, with a need for preservation of capital that accrues capital gains/losses over the lifespan of the investment. ASIC felt that the PDS did not match up with the TMD in the circumstances. While not the first, what interests me is the efficient regulatory strategy of comparing PDSs to TMDs and issuing stop orders where there is sufficient difference. For many organisations which potentially rushed their TMD design heading into 1 October 2021, now is the time to revisit them.
- ASIC funding (Treasury): On 8 August 2022, the Government announced a review of the ASIC Industry Funding Model and issued a Terms of Reference to guide the Review. It has released a Discussion Paper to seek stakeholder views on options, examples of potential changes and questions that are designed to examine and address a range of issues set out in the Review’s Terms of Reference. The paper is treacherously dull, though table 2 on page 11 contains a great breakdown of ASIC’s budget and how it is allocating the same. The quantum is increasing faster than inflation — despite the number of entities it regulates decreasing — and a great portion of its budget is going to enforcement (now at a third of all costs!).
- Economic Crime (UK): The UK government has published its Economic Crime and Corporate Transparency Bill. The bill follows on from the Economic Crime (Transparency and Enforcement) Act 2022 (cth), which was passed earlier this year. The first legislation: allowed the government to move faster when imposing sanctions; created a register of overseas entities (ROE) to target foreign criminals using UK property to launder money; reformed the UK’s unexplained wealth order regime. The new legislation will aim to deliver: reforms to Companies House; reforms to prevent the abuse of limited partnerships; additional powers to seize and recover suspected criminal cryptoassets; reforms to give businesses more confidence to share information to tackle money laundering and other economic crime; and, new intelligence gathering powers for law enforcement and removal of burdens on business. On the AML/CTF front — which costs the UK economy about 100B a year — it increases the power of Companies House to make it a more effective gatekeeper, including new powers to check, remove, or decline information submitted to the register. This includes introducing additional identity verification measures to make it clear who is setting up, managing, and controlling corporate entities. The bill also grants Companies House greater investigation and enforcement powers, including cross-checking and sharing data with other public and private sector bodies and law enforcement.
Thought for the future: I think the UK is just such a sophisticated regulatory environment — the reforms this week show it. Operating a company, with all the rights and responsibilities that accrue e.g. limited liability, is a privilege. There should be basic AML / CTF checks conducted to ensure that privilege is not being abused.
Published on Australian Regulators Weekly Wrap.
If you found this insight article useful and you would like to subscribe to Gadens’ updates, click here.
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.