Australian regulators weekly wrap — Monday, 11 January 2021

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. Banking Code (ASIC): ASIC has approved variations to the Banking Code of Practice. The main change is that the amended Code specifies situations in which banks may decline to continue dealing with a representative that a customer in financial difficulty has appointed, if the bank reasonably considers that representative is no longer able to act in the customer’s best interests e.g. debt advisers. In addition, there has been a variation to the Code’s timeframes for responding to complaints with the updated timeframes in ASIC’s Regulatory Guide 271 Internal dispute resolution, which is due to commence on 5 October 2021. The instrument is here.
2. Loan deferrals (APRA): the Australian Prudential Regulation Authority has published the latest monthly data for ADIs’ temporary loan repayment deferrals due to COVID-19, which includes data at both the industry and entity level. The data is available on the APRA website at: Temporary loan repayment deferrals due to COVID-19, November 2020. As at 30 November, a total of $60 billion worth of loans are on temporary repayment deferrals, which is around 2.3 per cent of total loans outstanding. Housing loans make up the majority of total loans granted repayment deferrals, and for the first time in November also have a higher incidence of repayment deferral with 2.4 per cent of SME loans subject to repayment deferral, compared to 2.8 per cent of housing loans. These numbers are better then earlier in the year, when they were double digits.
3. Trade-based AML (FATF): the global Financial Action Taskforce (FATF) has released a long report on trade-based money laundering. Key findings include that: a) exploitation of trade financing processes was a common theme noted by private sector contributors; b) while financial institutions were aware of the risks associated with third-party intermediaries, the report acknowledges that others in the supply chain, such as legitimate importers or exporters, or those with an oversight role, such as auditors or accountants, may not question why an entirely unrelated third party is involved in the payment settlement process; and c) relevant trade data is held across multiple stakeholders with restrictions about the extent to which this data is shared, both operationally and in bulk. A useful, if dense report, for those in the AML / CTF space.
4. Squirrel Superannuation (ASIC): ASIC has commenced civil penalty proceedings in the Federal Court against Squirrel Superannuation Services Pty Ltd (Squirrel) for false or misleading representations. Squirrel is a financial technology company that holds an AFSL. ASIC alleges that from around January 2015, Squirrel marketed and sold services helping customers establish and operate self-managed superannuation funds (SMSF) to purchase established residential property. In March 2015, Squirrel first published and distributed a brochure headed ‘How buying established residential property can super charge your superannuation?’. ASIC alleges Squirrel, in its brochure, made misleading representations that:‘… residential property in metropolitan locations doubles in value every 7–10 years and generates a rental return of around 4–5% per annum’ and there is a ‘remarkable’ difference in returns between investing in a regular superannuation fund (7%) and using an SMSF that purchased residential property (14%). The action is a reminder that ASIC is still very focused on investor disclosures, from whichever sector in financial services they are made (4 months ago it was all about funds disclosures).
5. Liquidity (APRA): the Australian Prudential Regulation Authority has announced a $46 billion reduction in the amount in the Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated ADIs that are subject to the Liquidity Coverage Ratio (LCR) from the amount as at 1 December 2020. The LCR is a minimum requirement that aims to ensure that ADIs maintain sufficient unencumbered high-quality liquid assets to survive a severe liquidity stress scenario lasting for 30 calendar days. The LCR is part of the Basel III package of measures to strengthen the global banking system. Expect more helping hands from the prudential regulator as Australia seeks to emerge from the destruction caused by COVID-19 this year…

Thought for the future: What awaits in the year ahead? DDO, BEAR / FAR, breach reporting and more for 2021. I usually do my planning in January, and this year is no different. To assist you with your planning, see this calendar I will keep updated: https://www.linkedin.com/groups/13933881/