Australian regulators weekly wrap — Monday, 13 July 2020

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. Product intervention power (ASIC): following its first victory against Cigno Pty Ltd (which is now subject to appeal), ASIC is doubling down against the Gold Coast payday lender and has released Consultation Paper 330 (CP 330) on the proposed use of its product intervention power to address significant detriment it has identified in the continuing credit industry. Under s. 204 of the National Credit Code (Sch 1 of the National Credit Act), a ‘continuing credit contract’ means a credit contract under which: (a) multiple advances of credit are contemplated; and (b) the amount of available credit ordinarily increases as the amount of credit is reduced. Under s. 6(5) of the Code, the National Credit Code and the National Credit Act do not apply to the provision of credit under a continuing credit contract under certain set circumstances. A practical example of a ‘continuing credit contract’ which ASIC is now targeting with its PIP power is as follows: BHF Solutions Pty Ltd (BHFS) provides loans under a continuing credit contract to retail customers and charges a fixed fee for each advance of funds under the contract, up to a maximum of $120 in a 12-month period; (b) an associate of BHFS, Cigno , enters into a services agreement with those retail clients, and charges various fees fast-track processing to obtain the loan from BHFS and loan management, etc. Those fees can make the original costs of the loan add up to 490% of the original lending! Neither BHF or Cigno hold an Australian Credit Licence given the above-mentioned ‘continuing credit contract’ exemption. That makes it hard for ASIC and AFCA to regulate them. Understandably, the conduct regulator is concerned that the continuing credit products are likely to result in significant detriment due to borrowers incurring very high cost credit, relative to the loan amount. ASIC is also concerned that continuing credit products are being issued to vulnerable clients, including many who are already in financial difficulty. ASIC is seeking the public’s input on the proposed intervention order by Thursday, 6 August 2020. For my part, I am very supportive of the ban…

Thought for the future: more and more, the COVID-19 relief measures are being discussed in terms of their finality. Some will cease overnight, some will be extended e.g. APRA’s capital treatment while others will most likely be progressively phased out. My sense is that this is what will occur with the insolvency relief laws. I doubt insolvent trading, and the changes to bankruptcy notices / statutory demands will disappear all at once.

(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)

AU financial services lawyer in compliance, regulatory & disputes. Email sign-up: http://eepurl.com/gG9Kk1 and LinkedIn: https://www.linkedin.com/in/lthennessy/