Gadens Regulatory Recap – 16 April 2024

This edition of the Gadens Regulatory Recap highlights recent developments from ASIC, APRA, ACCC, the OAIC, and the ATO, including various enforcement actions taken by the regulators. 

ASIC

1. ASIC consults on misconduct reporting guidance for external administrators and controllers: ASIC is consulting on proposed updates to Regulatory Guide 16 (RG 16), which deals with the reporting obligations of external administrators and controllers under the Corporations Act 2001 and Corporations Regulations 2001. ASIC has noted that RG 16 has not been significantly updated since 2008 and requires extensive revisions to balance the need for effective regulatory oversight with the operational efficiency of administrators. The proposed changes include: 

• simplifying the initial statutory reporting requirements to reduce the burden of extensive investigations and associated costs; 
• modifying guidance for the supplementary statutory report, including limiting the circumstances in which a report is necessary, such as court orders or significant findings requiring ASIC’s attention; and 
• the removal of outdated terms and the integration of developments from recent case law. 

Consultations on the proposed changes are open until 6 June 2024. 

2. ASIC enforcement activities: ASIC has continued to deliver various enforcement activities over the past fortnight. 

On 3 April 2024, ASIC cancelled the AFSL of Menon & Associates, on the basis that the organisation was no longer carrying on a financial services business. 

The director of William Buck Audit (Vic) Pty Ltd, Mr Nicholas Benbow, has paid $20,625 to comply with three ASIC infringement notices, constituting the first infringement notices issued by ASIC under the Corporations Act for an alleged breach of audit rotation issues. ASIC alleged that Mr Benbow failed to conduct three company reviews in accordance with certain auditing standards. Importantly, payment of an infringement notice is not an admission of liability or guilt. 

Following an investigation by ASIC and referral to the Commonwealth Director of Public Prosecutions, Mr James Mawhinney was arrested and charged with four counts of engaging in dishonest conduct in the course of carrying on a financial services business. ASIC alleges that on four occasions from August 2019 and April 2020, Mr Mawhinney dishonestly misrepresented to the trustee of the IPO Wealth Fund, that the IPO Wealth Group owned certain companies when it did not.  

On 10 April 2024, ASIC lodged an appeal on the Federal Court’s decision to dismiss ASIC’s proceedings against Finder Wallet Pty Ltd for allegedly providing unlicensed financial services, breaches of product disclosure requirements, and failures to comply with design and distribution obligations relating to its product “Finder Earn.” Gadens has previously covered ASIC’s case here.  

On 11 April 2024, the Federal Court ordered Lanterne Fund Services Pty Ltd (Lanterne), a wholesale licensee, to pay a penalty of $1.25 million following failures to comply with six of the general obligations of AFSL holders. The obligations breached by Lantern included the obligation to: 

• have adequate risk management systems; 
• have adequate technological and human resources to provide the services covered by its AFSL; 
• ensure that its representatives were adequately trained; 
• maintain the competence to provide financial services covered by its AFSL; 
• take reasonable steps to ensure that its representatives complied with Australian financial services laws; and 
• do all things necessary to ensure that the financial services covered by the licence were provided efficiently, honestly, and fairly. 

Lanterne operated a ‘licensee for hire’ business model. It authorised over 60 corporate authorised representatives and under them, 205 authorised representatives, who together had up to $1.685 billion in funds under management. Despite charging those representatives significant fees, Lanterne failed to maintain basic risk and compliance management systems. It maintained records using a paper filing system and had only one full-time employee, its CEO and sole director.  In setting down the penalty, Justice McEvoy stated that “Lanterne’s conduct fell well short of the reasonable standard of performance of an AFSL holder, which the public is entitled to expect. It failed to demonstrate competence in performing its obligations as an AFSL holder and competence in complying with its applicable statutory obligations.” 

On 11 April 2024, the Federal Court ordered that Prospero Markets Pty Ltd (Prospero) be wound up on just and equitable grounds, and that liquidators be appointed on the basis of an application by ASIC. ASIC made the application due to a range of concerns relating to the management of Prospero’s business, and compliance with AFSL conditions and obligations under the Corporations Act. Gadens has previously covered ASIC’s dealings with Prospero in the 5 March 2024 edition of the Regulatory Recap and the October 2023 edition of the National Integrity Spotlight. 

On 12 April 2024, the Federal Court made a finding that Sunshine Loans, a small amount lender, entered into over 670,000 contracts that included an amendment or rescheduling fee that is not permitted under the National Credit Code. Sunshine Loans obtained almost $300,000 in prohibited fees between July 2016 and November 2020. Justice Derrington also stated that “Sunshine Loans failed to comply with the credit legislation.” A penalty has not yet been determined. 

Treasury

3. Treasury Proposes Merger Reform Measures: Treasury has published the results of its recent consultation on proposed reform of Australia’s merger control systems in a paper titled “Merger Reform: A Faster, Stronger and Simpler System for  a More Competitive Economy”. After much speculation, Treasury proposes to introduce a mandatory and suspensory system that will require all prospective mergers above a defined threshold to apply to the ACCC for clearance and delay completion until approved. 

The ACCC has welcomed these changes, especially those in relation to mandatory notifications and serial or creeper acquisitions falling short of a change of control, with the major changes largely in line with the model the ACCC proposed during the submission process. The biggest item missing from the ACCC’s wish list was a reversal to the onus of proof, which would have effectively assumed all mergers were anti-competitive and required merger parties to show that this was not the case in relation to each transaction. 

More information on the Merger Reform changes will be provided in our upcoming Legal Insight by Partners Adam Walker and John Kettle. 

APRA

4. APRA releases minor updates to the prudential framework for ADIs and insurers: On 4 April 2024, the Australian Prudential Regulation Authority released a consultation for several minor updates to the prudential framework for general, life and private health insurers, and authorised deposit-taking institutions. The proposed changes are primarily technical clarifications rather than material change in policy settings. The updates have been made to:

• APS 111 Capital Adequacy: Measurement of Capital; 
• APS 220 Credit Risk Management; 
• APG 210 Liquidity; 
• APS 330 Public Disclosure (January 2025); 
• GPS 310 Audit and Related Matters; 
• HPS 112 Capital Adequacy: Measurement of Capital; 
• LPS 112 Capital Adequacy: Measurement of Capital; and 
• LPS 117 Capital Adequacy: Asset Concentration Risk Charge. 

Submissions for feedback on the proposed changes remain open until 3 May 2024. 

5. APRA releases letter on upcoming climate risk self-assessment survey: On 3 April 2024, APRA released a cross-industry letter advising on the scope, purpose and timing of its 2024 voluntary climate risk self-assessment survey for APRA regulated entities, which it will shortly commence. APRA regulated entities will be required to self-assess the maturity of their current practices against APRA’s guidance on managing financial risks of climate change.  

The survey is open to all insurance, banking and superannuation entities regulated by APRA, which are invited to complete the survey via an online questionnaire. After the survey has closed, APRA will provide participant entities with de-identified results to enable them to better understand approaches and practices across their respective industries. 

RBA

6. RBA Publishes Research on Australian Consumer Perceptions of Retail Central Bank Digital Currency (CBDC): The RBA has published its findings from a discrete choice experiment designed to assess the extent to which Australian consumers would value access to a digital currency issued by the RBA (as opposed to a commercial bank), and how much value those consumers would place in potential privacy characteristics of a retail CBDC. 

The study ultimately concludes that while Australians have significant confidence in commercial banks and place little value on a digital currency issued by the RBA from a safety of funds perspective, the potential for such a currency to reduce the number of institutions that see their transaction data may be a significant drawcard. 

The survey provided to participants appears to have been framed in terms that were intended to be cryptocurrency agnostic. Typical industry terminology such as “CBDC” was avoided entirely to avoid the need to explain complex digital currency concepts to participants, with the line of enquiry instead framed in terms of a choice between two new bank accounts with varying characteristics.  

While the study provides an interesting snapshot of consumer sentiments from the perspectives of institutional trust (between commercial banks and the RBA) and privacy, value propositions associated with CBDCs are complex and consumer sentiments towards an Australian retail CBDC in the short to medium may also be influenced by a number of commercial utility factors that are not considered by the study.  

AFCA 

7. AFCA worried by rising complaints over handling of hardship: On 3 April 2024, AFCA outlined its concern over a rise in complaints involving financial difficulty, especially lenders’ handling of customer requests for hardship assistance, particularly in relation to home loans.  

AFCA noted that this rise in complaints was somewhat predictable given the challenging economic environment and recognised that while lenders had made investments in specialist teams and better processes, there is still work to be done. Failure by lenders to respond to requests for hardship assistance was identified as a key driver of financial difficulty complaints in 2023. 

ACCC

8. ACCC grants authorisation for banks to establish a program to jointly procure assurance reviews of mortgage aggregators: The ACCC has authorised  Commonwealth Bank, Westpac, ANZ, NAB, and Macquarie Bank, along with other industry participants to establish a program to collectively acquire assurance services related to mortgage aggregators until 3 May 2029. The authorised conduct allows lenders to jointly arrange and share the cost of aggregator assurance reviews. 

The ACCC believes that by reducing the need for multiple assurance reviews, streamlining resources and information required by both parties, the program will lead to efficiencies and cost savings for both lenders and aggregators. Additionally, the ACCC anticipates that this program will elevate the standard of assurance reviews due to collective efforts. 

ATO

9. ATO encourages NFPs to get ready for new return: Non-charitable not-for-profits (NFPs) with an active Australian Business Number will be required to lodge an annual self-review return to the ATO to confirm its income tax exemption status for the 2023-2024 tax year. The requirement, as introduced in the 2021-22 Federal Budget, is to ensure only eligible non-charitable NFPs have access to income tax exemptions.  

NFPs will need to prepare and submit their annual self-review between July and October 2024.  

Reports can be prepared by NFPs on their own or by their accountant and can be lodged through the ATO online portal (or by telephone if the NFP is unable to do so online). Steps to ensure NFPs are ready to submit its report by the due date can be taken now and are available on the ATO’s website. 

Legislative Updates

10. Senate Refers Bill to Senate Economics Legislation Committe for inquiry: The Senate has referred the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Bill) to the Senate Economics Legislation Committee for inquiry.  

The Bill proposes to introduce amendments across a number of pieces of legislation, including implementing the first tranche of the Government’s “Delivering Better Financial Outcomes”, which seeks to: 

• clarify the legal basis for superannuation trustees to charge members for financial advice from their superannuation account; 
• streamline ongoing fee renewal and consent requirements; 
• provide more flexibility around how financial services guide requirements can be met; and 
• simplify and clarify Corporations Act provisions relating to conflicted remuneration. 

The closing date for submissions to the inquiry is 26 April 2024.

If you found this insight article useful and you would like to subscribe to Gadens’ updates, click here.

Authored by:
Matthew Bode, Partner 
Kelly Griffiths, Partner 
Michael Kenny, Partner 
Sinead Lynch, Partner 
Daniel Maroske, Partner 
Kate Mills, Partner 
Caroline Ord, Partner 
Cinzia Donald, Partner (Lavan) 
Anna Fanelli, Senior Associate
Zira Norman, Senior Associate
Phil O’Brien, Senior Associate
Tehlyn Murray, Associate
Patrick Simon, Associate
Monica Baur, Solicitor
Fiona Ng, Solicitor
Oskar Henderson, Paralegal
Rose Hou, Paralegal
Steven Schwartz, Paralegal
Bronte Anderson, Paralegal
Wen Wong, Paralegal