Gadens Regulatory Recap – 30 April 2024

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

ASIC

1. ASIC releases early guidance on mandatory climate disclosure regime: During a keynote speech at Deakin Law School, ASIC Chair Joe Longo urged entities to prepare for Australia’s imminent mandatory climate disclosure regime. The new regime will require entities to report on their climate change mitigation processes and greenhouse emissions. The regime will affect 6,000 entities in Australia.

The key takeaway was that entities should prepare for the climate-related financial disclosure requirements before commencement. Mr Longo also encouraged listed companies to do so voluntarily under the recommendations of the Financial Stability Board’s taskforce on Climate-related Financial Disclosure. In order to avoid being left unprepared, entities should begin implementing the systems, processes, and governance mechanisms that will be required to meet their climate reporting requirements.

ASIC foreshadowed the announcement of the regime’s enforcement scheme (which remains in development).

ASIC also emphasised that although the new reporting requirements impose obligations on directors and entities, they also create opportunities for entities to benefit from the enhanced transparency that these obligations will bring. Markets and investors are increasingly attracted to green investments and already rely on information provided in climate related reports and disclosure when making decisions. Therefore, entities with rigorous and comprehensive climate-related reporting will be at an advantage.

ASIC also announced that it is developing a new regulatory guide for the climate reporting regime and resources on the ASIC website to assist the preparation of sustainability reports.

Gadens partner Susan Goodman has provided insights into ASIC’s regulatory action against Greenwashing. The insight article can be found here.

2. ASIC insolvency data shows increase in companies failing: ASIC has published insolvency data for the period from 1 July 2023 to 31 March 2024.

The data shows a 36.2% increase in the number of Australian companies that have entered external administration compared to the same period last year, with a 294.6% increase in restructuring and a 218.8% increase in court liquidation appointments.

The data suggests that the number of companies that have entered external administration this financial year will exceed 10,000, being the levels not seen since FY2013.

3. No-action position on financial reporting obligations of special purpose financing subsidiaries and their guarantors: ASIC has announced that it will not take enforcement action against special purpose financing subsidiaries and other wholly owned subsidiaries that issues debentures to sophisticated investors for the purpose of providing finance to companies in the same corporate group who failed to meet financial reporting obligations.

Under ASIC instrument 2016/785 certain wholly owned corporations are excluded from reporting obligations under Chapter 2M of the Corporations Act 2001, where they enter cross guarantee agreements with their holding entity and meet certain other conditions. However, the exclusion does not apply to wholly owned companies that are ‘borrowers in relation to debentures’ or ‘a guarantor of such a borrower’.

ASIC take this position following receipt of reports that wholly owned entities within corporate groups that have offered debentures to other entities in the group for the purpose of finance have failed to meet their financial reporting obligations under the mistaken view that the exclusion found in instrument 2016/785 applied to them.

The no-action position means that ASIC will not take any action against those wholly owned subsidiaries that failed to prepare and lodge annual reports where these companies have otherwise complied with the requirements of ASIC instrument 2016/785.

The no-action position only applies for financial years following 28 September 2016 and does not apply where there are other requirements under the Corporations Act (such as those that apply to trustees).

Companies and directors should keep in mind that an ASIC no-action position does not preclude third parties from taking legal action against entities that have engaged in the no-action conduct nor does it prevent courts from finding that the conduct breaches the relevant legislation.

The no-action position was adopted by ASIC in response to stakeholder feedback.

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

On 26 April 2024, ASIC announced that it permanently banned NSW based financial adviser Adele Baaini from providing any financial services or credit activities. ASIC found that Ms Baaini had failed to act with integrity and exercise sound judgement in the course of providing financial services on the basis that Ms Baaini:

• provided a falsified Financial Adviser Exam certificate to an Australian financial services licensee;
• provided personal advice to 121 clients in circumstances where she knew that she did not meet the prescribed training standard; and
• was not adequately trained to provide financial services and would be likely to breach credit and financial services legislation.

Ms Baaini will have the opportunity to appeal the decision at the AAT.

On 22 April 2024, the director of Consutel Cloud Pty Ltd (in liquidation), Benjamin Thomas Molloy, appeared at the Melbourne Magistrates Court charged with breach of director’s duties and making false statements to ASIC.

The allegations follow an ASIC investigation which found that Mr Molloy misused his position as director to cause profits from the sale of motor vehicle assets to be redirected to another company of which he was director and that he further made five false statements in forms lodged to ASIC.

The maximum penalty for the alleged offences is 15 years imprisonment.

On 22 April 2024, ASIC cancelled the Australian Financial Service Licence (AFSL) of JB Markets Pty Ltd (JB Markets). The cancellation comes as a result of ASIC’s finding that JB     Markets:

• failed to comply with the requirements of its AFSL; and
• did not have adequate resources to conduct the supervisory arrangements required under its AFSL.

JB Markets will have the opportunity to apply to the AAT for a review of ASIC’s decision.

Treasury

5. Financial services misconduct compensation scheme up and running: On 15 April 2024, Treasury announced that the Compensation Scheme of Last Resort (CSLR) has begun processing compensation claims for eligible persons that are victims of financial misconduct.

The purpose of the CSLR is to provide victims of financial services misconduct with access to redress and compensation.

The scheme, which can provide up to $150,000 in compensation, was first proposed in the 2017 Ramsay Review as part of the Royal Commission into Banking and provides compensation for victims of misconduct relating to financial services, credit and securities. The CLSR is designed to “strengthen consumer trust and confidence in Australia’s financial system.”

APRA

6. APRA consults on enhancements to quarterly insurance publication suite: APRA has commenced a consultation on proposed changes to the content and presentation of APRA’s quarterly insurance statistical publications.

The proposed changes are made out of consideration of changes that have come into effect since the implementation of the Australia Accounting Standards Board’s collection requirements and the revised private health insurance capital framework. APRA is seeking feedback on the proposed changes to the following insurance statistical publications:

• quarterly general insurance performance statistics
• quarterly life insurance performance statistics; and
• quarterly private health insurance statistics.

Submissions on these proposals are due by 22 May 2024 and information can be found here.

7. APRA and ASIC publish latest data on life insurance claims and disputes: APRA has released its Life Insurance Claims and Disputes Statistics publication, which presents data on claims and disputes for industry and entity-level insurance claims for Australian life insurers in 2023.

APRA and ASIC considered four metrics in collecting and presenting the data:

• the percentage of claims accepted;
• the length of time taken to pay out claims;
• the number of claims disputed by insurers; and
• policy cancellation rates.

The report considered data from seventeen Australian life insurers and does not include data for reinsurers. The data can be found here.

8. APRA updates ARS 701.0 for Economic and Financial Statistics collection: APRA has updated definitions and reporting concepts for Economic and Financial Statistics (EFS) reporting standards and guidance. Changes have been made to:

• ARS 701.0 ABS/RBA Definitions for the EFS Collections; and
• RPG 701.0 Reporting Concepts for the EFS Collection

which effect the reporting obligations of authorised deposit taking institutions and registered financial corporations.

The changes to ARS 701.0 are part of an effort to modernise economics and financial statistics reporting standards and guidance.

The updated definitions can be found here for authorised deposit taking institutions and here for registered financial corporations.

9. APRA releases letter on upcoming climate risk self-assessment survey: APRA is commencing a voluntary survey among its regulated institutions to assess their readiness in managing financial risks associated with climate change.

This survey, following a similar one conducted in 2022, aims to gauge how well reporting entities align with APRA’s guidelines outlined in Prudential Practice Guide CPG 229 on Climate Change Financial Risks. The survey seeks to enhance understanding of industry practises regarding climate-related risk management, support APRA’s supervisory assessments, and promote benchmarking and best practices within the industry.

The survey will be open to all banking, insurance, and superannuation entities regulated by APRA, with questions primarily in a multiple-choice format to streamline responses. While many questions from the previous survey remain unchanged to ensure consistency in assessment, new inquiries will address evolving policy landscapes and emerging issues like nature risk and transition plans.

After completion, participating entities will receive peer-comparison results and industry-level insights, while APRA will integrate survey insights into supervisory processes. Future iterations of the survey may be considered to monitor industry progress over time.

The initiative aims to enhance the financial sector’s preparedness for climate-related risks and foster collaboration and transparency across regulated entities.

AFCA

10. AFCA publishes latest edition of its systematic issues insights report: AFCA has published its Systemic Issues Insights Report for FY23-24. AFCA is required to identify, refer and report to regulators each year on systemic issues arising from complaints it receives.

Common systemic issues in relevant sectors for FY24 include:

• Banking and finance
  • Compliance with IDR processes under ASIC RG 271
  • Collection activity during open AFCA complaints
  • Dealing with scams including elements of prevention, investigation, recovery and communications
• General insurance
  • Dealing with third party representatives
  • Policy interpretation
• Superannuation
  • Adequacy of claims handling process
  • Breach of obligations under SIS Act and SIS Regulations
  • Cancellation of policies

The report includes a useful summary of case studies, including examples of best practice engagement with AFCA by financial firms. AFCA also reminds firms that it does refer systemic matters to the appropriate regulator in cases where financial firms did not engage with AFCA or take steps to resolve the systemic issues. The key takeaway from the report is that financial firms should engage with AFCA to address systemic issues as early as possible as a matter of best practice.

AUSTRAC 

11. AUSTRAC issues businesses with infringement notices for failing to comply with their reporting obligations: AUSTRAC is cracking down on businesses and sole traders who fail to report as required by the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). Businesses and sole traders who provide designated services encompassed by the AML/CTF Act are required to submit a compliance report annually.

The annual reports form part of key information AUSTRAC uses to support Australia in its defence against money laundering and terrorism financing. AUSTRAC has issued infringement notices for sole traders of $3,300 and companies of $16,500 for a failure to submit 2022 compliance reports.

AUSTRAC has indicated that it will continue to monitor compliance with reporting requirements and will take enforcement action where a business or sole trader fails to do so.

ACCC 

12. GLAD bags manufacturer in court for ‘50% ocean plastic’ claims: The ACCC has taken legal action against Clorox Australia Pty Ltd, the manufacturer of GLAD-branded kitchen and garbage bags, for allegedly misleading consumers about the recycled content of their products. The ACCC is seeking various remedies, including declarations, penalties, injunctions, a compliance program order, corrective notices, and costs.

The GLAD bag packaging featured statements and imagery that implied the use of recycled ocean plastic, potentially misleading consumers into believing they were supporting ocean cleanup efforts. However, the plastic used in the bags was sourced from communities near shorelines, not directly from the ocean. Clorox updated the packaging of their products over time, but the ACCC alleges that the representations remained, despite these changes.

This legal action follows the ACCC’s enforcement priority to address false or misleading environmental claims, as consumers increasingly base their purchasing decisions on environmental consideration. The ACCC has also released guidance for businesses on making environmental claims to ensure compliance with the Australian Consumer Law and to provide accurate information to consumers regarding the environmental performance of products.

13. ACCC proposes to authorise collective negotiation by the Water Services Association of Australia: The ACCC plans to allow the Water Services Association of Australia (WSAA) and its members to work together for five years to make the supply of gaseous chlorine in Australia safer.

Gaseous chlorine is crucial for ensuring clean drinking water across the country.

WSAA and its members will be allowed to negotiate as a group with potential chlorine suppliers. They will also be able to share information to support these negotiations. This could result in building a new chlorine packaging facility in Australia or planning to import packaged chlorine.

To kickstart the process, the ACCC has given interim approval for WSAA and participants to start talks and share information. However, no contracts can be finalised until the ACCC makes its final decision.

The ACCC wants public feedback on its plan by 3 May 2024. You can learn more about the proposal and how to give feedback on the ACCC’s website.

14. ACCC proposes to authorise recruitment associations professional conduct regime: The ACCC is seeking submissions in response to a draft determination which contemplates granting authorisation to the Recruitment, Consulting and Staffing Associations Limited (RSCA) to continue to operate parts of its Professional Conduct Regime.

The RSCA Professional Conduct Regime sets out professional standards for its members and also regulates conduct in relation to the provision and recruitments and human resource  services.

The draft determination grants authorisation to the RSCA for a 10 year period.

Information on submissions can be found here.

15. ACCC allows collective bargaining by Small Australian Mutuals: The ACCC has not objected to a collective bargaining notification by The Customer Owned Banking Association (COBA).

COBA lodged the notification on behalf of some of its members (Small Australian Mutuals (SAM) and The Mutual Bank) to enable Shared Services Partners Pty Ltd, a procurement company, to negotiate with potential providers of a Loan Serviceability Calculator for SAM members.

The ACCC allowed the notification to remain in force for 10 years, given collective negotiations will likely result in more efficient terms and conditions and reduce overall transaction costs for the relevant parties, and public detriment will likely be, if any, minimal.

RBA

16. RBA report on interlinking fast payment systems: The RBA has released a report summarising its findings from a recent study assessing potential benefits and challenges of interlinking foreign jurisdiction fast payments systems, such as Australia’s New Payments Platform, to facilitate seamless international linked payment infrastructures (Report).

The Report provides that interlinking of fast payment systems is expected to result in significant improvements to speed and transparency of international payments, albeit at the ‘expense’ of increased costs, and highlights practical challenges associated with harmonising technological standards and discrepancies between legal and regulatory frameworks that apply to fast payments systems in different jurisdictions and regions.

The RBA also confirms that it will continue to engage with international stakeholders in relation to interlinking initiatives to inform future discussions about the future of international fast payments systems.

OAIC 

17. Information commissioners and ombudsmen look to the future: embracing innovation and strengthening independence: Last month, the Association of Information Access Commissioners (AIAC) made up of information commissioners and ombudsmen from around Australia and New Zealand, met in Melbourne.

The AIAC conferred on:

• the proliferation of artificial intelligence (AI) in public sector business operations, including in the spheres of access to information assistance and administrative decision making;
• the importance of new AI technology being regulated by access to information law in order to protect privacy, information and human rights; and
• protecting and maintaining information commissioner and ombudsman independence.

The AIAC concluded that in an environment where the rapid adoption of AI technologies is considered so important, it is crucial that new technologies are adopted in a way that makes room for the preservations and protection of access to data and information that informs the operation and decisions of AI.

The AIAC further concluded that the proliferation of new AI technologies makes the funding and independence of information commissioners and ombudsmen a high priority, such that they can continue to meet their statutory function and continue to foster trust in public administration and state decision making and process.

18. Consultation on application to vary the Credit Reporting Code: The OAIC is conducting consultation with respect to its 19 proposals made in response to the Australian Retail Credit Association’s application to vary the Privacy (Credit Reporting) Code 2014 (CR Code).

The 19 proposals seek to give effect to the proposals in the OAIC’s independent review of the CR Code (found here at pages 9 and 10 of the report).

The OAIC want to hear from interested parties about the application and how it addresses the relevant proposals.

Consultation closes 7 May 2024 and information can be found here.

Legislative Updates

19. Attorney General’s Department is undertaking a public consultation regarding Australia’s Credit Reporting Framework: The Australian Government is accepting submissions with regard to its independent review into Australia’s credit reporting framework.

The review seeks to review the overall efficacy and effectiveness of the credit reporting provisions in the Privacy Act 1988 (Privacy Act) and the National Consumer Credit Protection Act 2009 (Credit Act) in enabling effective lending decisions by credit providers while ensuring the personal information of consumers is adequately protected. Specifically, the operation of:

• the credit reporting provisions in Part IIIA of the Privacy Act; and
• the mandatory credit reporting provisions in Part 3-2CA of the Credit Act.

The review seeks to determine a holistic view to Australia’s credit reporting framework that satisfies both of these statutory requirements, generally undertaken independently by the AG’s Office and Treasurer, respectively. The review will also have regard to other ongoing reviews including ACCC’s Digital Platform Services Inquiry, Privacy Act Reforms, Consumer Data Right and the Government’s Cyber Security Strategy, amongst others.

It is a welcome development that many credit providers, lenders and non-bank lenders will be keen to see the outcome of during 2024.

The closing date for a response to the consultations is 31 May 2024.

A report must be provided by the review committee to Government no later than 1 October 2024. Former Australian Prudential Regulation Authority (APRA) senior executive Ms Heidi Richards has been appointed to conduct the independent review supported by the AG’s Office, Treasury and the AGD.

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Authored by:

Matthew Bode, Partner
Kelly Griffiths, Partner
Michael Kenny, Partner
Sinead Lynch, Partner
Daniel Maroske, Partner
Kate Mills, Partner
Caroline Ord, Partner
Patrick Simon, Associate
Tehlyn Murray, Associate
Monica Baur, Solicitor
Bronte Anderson, Solicitor
Declan Melia, Solicitor
Fiona Ng, Solicitor
Kartia Bouras, Solicitor