Australian regulators weekly wrap — Monday, 12 December 2022

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.

Never miss an update by signing up to receive emails here or by following me on LinkedIn here. You can also access past editions of the Australian regulators weekly wrap by clicking here.

1. American express (ASIC): ASIC has commenced proceedings in the Federal Court against Amex, in ASIC’s first civil penalty case alleging breaches of design and distribution obligations. ASIC alleges that: 1) the target market determinations issued by Amex did not limit distribution to people looking to make purchases on credit with a card that earned points or other benefits; and, 2) Amex was aware that the cancellation rates for consumers who applied for the credit cards in David Jones stores were high, and Amex knew some consumers were confused about whether they had applied for a loyalty card or a credit card and that this was a circumstance that indicated the TMDs were not appropriate and required Amex to review the TMD and stop issuing the credit cards. You can read the concise statement of ASIC’s action here, which is deeply fascinating; we haven’t seen ASIC delve into the monitoring requirements for TMDs before — just whether or not they matched the PDS or other product description. This case will set the benchmark on those monitoring obligations, so is one to watch!
2. OnePath (ASIC): ASIC has commenced civil penalty proceedings against OnePath Life for breaches of its duty to act with utmost good faith during claims handling. ASIC Deputy Chair Sarah Court highlighted the importance of insurers ‘needing to focus on their claims handling processes to ensure they meet their legal obligations’. In proceedings commenced against OnePath life, it is alleged that the OnePath Life failed to act with utmost food faith when it decided not to pay out the policy on the basis that the customer acted fraudulently by failing to disclose prior hospitalisation. Specifically, OnePath failed to act in utmost good faith by: failing to advise the customer that the lack of disclosure was fraudulent; failing to adequately investigate the customer’s explanation for non-disclosure; and, failed to inform the customer of the right to appeal through AFCA. Given insurers deal with their customers at their most vulnerable, it is important that they ensure customers understand all their rights to comply with their good faith obligations. Accusations of fraud are an especially serious allegation and the onus is on the insurer to make their concerns explicit, give the customer the chance to respond, and make proper inquiries into the explanations given by customers. With all this said, it does create quite a high bar for life insurers in discharging this duty…
3. Company reporting (ASIC): ASIC is urging directors, preparers of annual and half-year reports and auditors to assess whether companies’ financial reports provide useful and meaningful information for investors and other users. ASIC has highlighted a number of areas for attention, in particular: asset values; provisions; solvency and going concern assessments; events occurring after year end and before completing the financial report; and, disclosures in the financial report and Operating and Financial Review. More detail about ASIC’s focus areas for 31 December 2022 reporting is outlined here.
4. Sustainability standards (AASB): Treasury has released Exposure Draft Legislation which seeks to amend parts of the Australian Securities and Investment Commission Act 2001 that will empower the Australian Accounting Standards Board to deliver sustainability standards. These standards are to be designed to ensure large businesses provide Australians and investors with greater transparency and accountability when it comes to their climate‑related plans, financial risks, and opportunities. A good step forward, you can read the draft bill here.
5. Purchasing AFSL / ACLs (ASIC): ASIC stated that a regulatory loophole exists which allowed collapsed crypto exchange FTX to side-step applying for Australian Financial Services License by purchasing an existing AFSL holder. ASIC chairman, Joe Longo said to the Parliamentary Joint Committee on Corporations and Financial Services “How did they get their existing license? Well, they brought it off an existing license-holder and under current statutory arrangements that was a lawful thing to do…We were notified of that acquisition, but It is very easy to buy someone else’s license and trade.” Asked to expand on the issue, ASIC chief operating officer, Warren Day, it depends on the nature of the (AFSL) purchase — “if they take control of the license there is no look at it but if there is a change to responsible people we would take a look…But the law does not permit us to look at the new license-holder and we see that as highly problematic” Day said. Hundreds of AFSL and ACLs are traded this way each year, though expect that cottage industry to dry up in 2023, even though I think ASIC’s comments are a little over-egged. Of course they have broad powers to look into new licence owners; the fact that they structurally and operationally don’t prioritise this compared to new licence applications is a seperate issue…

Thought for the future: it doesn’t feel like ASIC’s relationship with Assistant Treasurer Jones is all that great, especially after this week’s spate on the FTX licence (Jones said much the same thing I’ve said above). Hard to tell how that will play out, but I do expect ASIC to stay out of policy actions (like Shipton waded into e.g. responsible lending) and stay focused on litigation (like Longo is) for the foreseeable future.