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.

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  1. Capital adequacy (APRA): the prudential regulator has released for consultation the interim reporting standards that will accompany the updated capital adequacy and credit risk capital requirements for authorised deposit-taking institutions. It follows the release in November 2021 of APRA’s new bank capital framework, which was meant to align Australian standards with Basel III requirements. The letter is here, and ADIs can comment up until 7 June 2022.
  2. ‘Technology development (APRA): APRA Chair Wayne Byres gave a speech to the American Chamber of Commerce in Australia, on regulating the technological revolution in finance which was fascinating. He essentially accepted the rise and permanence of crypto currency, noting “Even central banks are conducting pilot exercises to test the use case for central bank digital currencies (CBDCs). Some countries — ranging from the Bahamas to China to Nigeria — have moved beyond pilots to general use…Evolution in the nature of money — from shells, to beads, to gold coins, to privately-issued bank notes, to central bank-issued bank notes, to the electronic bank deposits most of us use today — has in turn shaped how the entire financial system has evolved…CBDCs, digital currencies/stablecoins and crypto-assets have the potential to significantly reshape the financial system. However, there remains significant uncertainty over what a more digital and decentralised financial system will ultimately look like, which new types of money will gain prominence, which products and services will take off, and which will fade away as newer, better alternatives emerge.” I think it is the clearest statement that APRA has made on the subject yet, and was accompanied by the Chair’s views on regulatory design for the future, which he summarised as follows: 1) not charging ahead pretending we have the answers; 2) ensuring that the regulatory agenda is focused on consumer benefits as much as it is on harm prevention; and 3) by trying to work with some key principles for good regulatory design e.g. technology-neutral, utilising principles-based regulation wherever possible, and by working with a whole-of-system perspective. I can cavil with the zeitgeist of principles-based regulation, though I don’t want to take away from what is a insightful, heartening and wholly timely speech. Bravo!
  3. Modern slavery (ABA): the Australian Banking Association has released its first edition working paper on Modern Slavery, bringing together member banks’ knowledge of modern slavery practices in Australia. The first edition working paper focuses on the construction and agriculture sectors and seeks to provide a point of reference for banks to operationalise modern slavery risk identification and management. There are some very helpful case studies in here which assist in highlighting the issues which can arise e.g. a ‘workers as consumers’ business model is where an intermediary creates revenue by charging workers excessive fees for ancillary products and services, such as accommodation, transportation, and equipment. You can read the report here.
  4. Takeovers panel (Treasury): this time last year, the Government announced that it would consult on expanding the role of the Takeovers Panel in control transactions, including potentially giving advance rulings and expanding the Panel’s remit to include members’ schemes of arrangement, with an aim of reducing the time and costs of mergers and acquisitions. In Australia, one of two control transaction processes is typically used to effect a change in corporate control. The first is a takeover bid, governed by the Takeover Rules in Chapter 6 of the Corporations Act 2001 (CA)(this is driven by the bidder, and used in hostile takeovers). The second is the implementation of a scheme of arrangement, a court-approved regime governed by Chapter 5 of the CA (this is drive by the target). As takeover bids can be hostile, with the target company subject to multiple competing takeover bids, disputes often arise. Disputes which arise during the takeover period are heard by the Takeovers Panel, which is a peer review dispute resolution body composed of members with expertise in mergers and acquisitions. Its primary power is to make a declaration of ‘unacceptable circumstances’ to protect the rights of persons or groups (especially shareholders of the target company). Treasury has just released a consultation paper seeking feedback on: the operation of takeovers and schemes generally, and whether they are meeting the broader policy objectives in respect of control transactions in Australian law; the role of the Takeovers Panel and ASIC in regulating takeovers generally; and, the role of the Court, the Takeovers Panel, and ASIC in regulating schemes general. The CP is here, and is open for consultation until June 2022 — giving more powers to the Takeovers Panel is certainly a sensible move in my book, given the speed and efficacy with which it can operate.
  5. SLACIP Act (Parliament): the Security Legislation Amendment (Critical Infrastructure Protection) Act 2022 (SLACIP Act) has been passed, and . implements key elements of the Australia’s revised critical infrastructure framework, by seeking to: introduce an obligation for entities responsible for critical infrastructure assets to implement a critical infrastructure risk management program; and, impose enhanced cyber security obligations on entities responsible for critical infrastructure assets which are declared by the Minister of Home Affairs to be ‘systems of national significance’ . It is the second half of the Security Legislation Amendment (Critical Infrastructure) Bill 2020 (SOCI Bill), which was ultimately split into the SLACIP Act and first piece of legislation — the Security Legislation Amendment (Critical Infrastructure) Act 2021 (SLACI Act). A massive uplift to Australia’s cyber security laws, you can read more about these items of legislation in this update here.

Thought for the future: ASIC has multiple tough jobs, and one of them is licensing market participants with AFSLs and ACLs. When it allegedly gets that wrong, for example by not establishing someone is of ‘good fame and character’ it can expose the regulator to criticism and financial claims as this article in the Guardian shows. That is why it is critical, when dealing with licensing with the regulator, to get it right the first time. Delays, increased requisitions and potentially refusal can follow if not….

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