Gadens Regulatory Recap
15 May 2023
Daniel Maroske, Director, Brisbane
This edition of the Gadens Regulatory Recap considers updates from ASIC, APRA, OAIC, ABA and legislative updates, with a focus on key outcomes arising from the Federal Budget.
- Design and Distribution Obligations: ASIC released Report 762 Design and distribution obligations: Investment products which found a significant number of product issuers had produced deficient target market determinations (TMDs), with unclear or inadequate product governance arrangements and poorly defined target markets. ASIC issued 26 stop orders with the key target market deficiencies across investment product issuers including: target markets being defined too broadly (a factor in 15 stop orders), unsuitable investor risk profiles a factor (a factor in 21 stop orders), and unsuitable investment timeframes and/or withdrawal features not reflecting the product’s risks and liquidity profile (a factor in 18 stop orders). ASIC is considering further stop orders for several other DDO investigations.
- Greenwashing actions: ASIC released Report 763 on its greenwashing surveillance activities undertaken from 1 July 2022 to 31 March 2023. Report 763 details the 35 interventions ASIC has made, which resulted in 23 corrective disclosure outcomes, 11 infringement notices issued, and the commencement of civil penalty proceedings in one case. The nature of the matters of which ASIC has intervened includes fund labels, use of terms such as ‘green’, ‘carbon neutral’ or ‘clean’, net zero statements and targets, along with the scope and application of investment screens and exclusions. ASIC’s interventions are targeted at ensuring that financial consumers and retail investors are not misled as to the green credentials of investments and listed companies.
- Credit / debt management: ASIC has announced it will be increasing its focus on protecting vulnerable consumers from credit providers and debt management firms. ASIC will use a variety of powers to take action against predatory lending practices where consumers are harmed and the Australian market’s integrity is undermined. These powers will range from issuing companies with warnings, to issuing stop orders, to undertaking court action, depending upon each situation. Over the past six months, some examples of ASIC’s targeted enforcement areas have related to whistleblowing, breaching continuous disclosure obligations and greenwashing. In light of their findings, ASIC continues to update the industry with helpful commentary and guidance in order to assist them in meeting their consumer-facing obligations.
- Implementation timeframes updated for Internal Dispute Resolution Data Reporting framework: ASIC has updated the implementation timeframe for IDR data reporting framework for financial firms reporting complaints information to ASIC for the first time. The first 97 large financial firms reported IDR data to ASIC in early 2023, with a further 260 expected to report in August 2023, with the first two tranches representing approximately 60% of consumer and small business complaints made. The updated implementation will see all licensees reporting IDR data to ASIC by February 2024. With the updated implementation timeframes, licensees should be aware of the reporting requirements, including what information is to be provided, and when they are required to commence reporting.
- Options over international ETFs (ASX): As of 1 May 2023, international Exchange Traded Fund (ETF) options are available for ETFs including IVV iShares S&P 500, NDQ Betashares Nasdaq 100 and VGS Vanguard MCI International Shares.
- Enforcement: ASIC’s Enforcement division has had a busy fortnight, announcing an internal restructure to improve efficiency of the regulator, essentially combining the two enforcement arms (financial services and markets) to remove internal ‘silos’.
On 11 May 2023, ASIC released its quarterly enforcement and regulatory update for work and key matters from 1 January and 31 March 2023 (Report 764). The report demonstrates ASIC’s ongoing commitment to enforcement to deliver on ASIC’s priorities, which we’ve written about previously. The update focused on ASIC’s actions to strengthen market integrity, in acting against misconduct, protecting consumers and investors, and fostering industry compliance.
ASIC continues to be active in the enforcement space, with various actions taken throughout the last fortnight, including the disqualification of a number of directors, including a director from Queensland, one from Victoria, a restaurants director, an infringement notice in relation to greenwashing and several AFS licence cancellations (including Capital Investment Partners Pty Ltd and DGR Bloodstock Services Pty Ltd). Separately, an individual was sentenced to two and a half years imprisonment, and fines for market manipulation and finfluencer conduct, Vaughan Brown was indicted on counts of insider trading, and proceedings were commenced for alleged unfair and misleading insurance contract terms.
- Liability insurance report: APRA released a report detailing claims trends and affordability of liability insurance in Australia. The report cited a surge in public and product liability insurance premiums of 40% since 2015 amid claims of businesses taking on more risk in an attempt to reduce or maintain premium costs.
- Latitude investigation (OAIC): The OAIC and the New Zealand Office of the Privacy Commissioner has commenced its first joint privacy investigation into the Latitude group of companies (Latitude). The joint investigation reflects the impact of the data breach on individuals in both countries, allows the efficient use of both agencies’ resources and reduces the regulatory impact on Latitude. OAIC’s investigation focus is on whether Latitude took reasonable steps to protect personal information they held from modification, unauthorised access, misuse, loss, interference or disclosure, or to destroy or de-identify personal information that was no longer required. If the investigation finds serious or repeated interferences in contravention of Australian privacy law, Latitude may be pursued in the Federal Court for civil penalties up to $50 million for each contravention.
- Federal Budget: The OAIC has welcomed the Government’s announcement that it will provide the Office with additional funding under the 2023-24 Federal Budget. The funding will be used to continue to support and protect Australians’ privacy and personal information. This is especially important in light of numerous Australian organisations being targeted and having their data systems breached by hackers. The Consumer Data Right, My Health Record and Digital Identity privacy programs will continue to be regulated and strengthened with these funds.
- Federal Budget: The Australian Banking Association (ABA) has released a comment on the 2023-2024 Federal Budget, with ABA Chief Executive Anna Bligh stating that the establishment of the National Anti-Scam Centre “prioritises customer safety.” The digital safety-related announcements include:
- $17.6 million over four years (and $4.4 million per year ongoing) for ASIC to identify and shut down websites that include phishing or otherwise promote investment scams
- $58 million over three years to establish the National Anti-Scam Centre within the ACCC, and the set up of public-private groups to target specific scams
- $10.9 million over four years (and $2.2 million per year ongoing) to establish and enforce an SMS sender registry.
- Federal Budget: The Federal Budget has taken into consideration recommendations by the Mortgage & Finance Association of Australia under the Budget. Additional funding has been allocated to provide affordable housing for Australians, strengthen consumer and business cybersecurity and digital innovation.
- ALRC issues background paper on post-legislative scrutiny: The ALRC has this month released a further background paper (one of the ten slated for the Inquiry), as part of the Review of the Legislative Framework for Corporations and Financial Services Regulation. The background paper focuses on post-enactment scrutiny and processes supporting parliamentary scrutiny, noting that post-legislative scrutiny “enables a parliament to self-monitor and evaluate, as well as reflects on the merits of its own democratic output and internal technical ability,” with the main focus of post-legislative scrutiny being to produce better laws. Interestingly, the paper specifically referred to guidance set out in the Legislation Handbook, produced by the Department of the Prime Minister and Cabinet, that recommends the inclusion of review mechanisms in the development of legislation, with approximately half of all principle Acts longer than ten pages passed from 2020 and 2022 containing mandatory review provisions. We will continue to follow the progress of the ALRC Inquiry, with a final report expected 30 November 2023.
- FAR: Despite hopes that the Financial Accountability Regime Bill would pass the Senate this week, the Bill was not considered, largely due to the focus on the Budget and related matters. While the Bill was not passed this week, we look forward to seeing the course that this legislation takes, given the state of limbo for the financial services industry while it remains in draft.
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Caroline Ord, Partner
Kate Mills, Partner
Matthew Bode, Partner
Michael Kenny, Partner
Daniel Maroske, Director
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.