Australian regulators weekly wrap — Monday, 17 April 2023

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. Super obligations (ASIC): some really fantastic work by ASIC this week, in issuing a new information sheet consolidating super trustee transparency and disclosure obligations into one webpage with links. INFO 278 is an inventory of information about existing obligations for trustees and can be accessed here. It has everything, even the niche stuff e.g. “Trustees of regulated superannuation funds that have at least seven members must publish a product dashboard for each MySuper product”. Assisting trustees to meet their disclosure obligations is a wonderful initiative — the burden of regulation has never been higher — and I hope ASIC rolls out more like it!
2. Op Risk (APRA): APRA has released an updated timeline for the implementation of the new cross-industry Prudential Standard CPS 230 Operational Risk Management. CPS 230 is designed to strengthen the management of operational risk in the banking, insurance and superannuation industries. The final version of CPS 230 will be released in the middle of this year, but not go live until 1 July 2025.
3. Executive accountability (Macquarie University): Prof Sheedy, who is an academic ornament to Australia’s FS reg profession, has published a paper asking “Does executive accountability enhance risk management and risk culture?”. Through empirical research e.g. interviews with executives under BEAR, the paper provides evidence that BEAR promotes greater felt accountability among senior executives which in turn stimulates more proactive and diligent risk management behaviour. In turn, this behaviour has the potential to attenuate many of the behavioural biases associated with risk management failures. Anecdotally, having worked on UK SMCR, BEAR and FAR since 2014, I agree. Once in place, the benefits from an accountability and effective decision making perspective are immense. It does take time to get there though. Directors are one piece of the puzzle, certainly, but engaged CEO, CRO, CPO and GC (the awesome foursome), supported by capable project teams, are critical to SMCR / BEAR / FAR implementation in my experience. They are the ones in the weeds and the engine room of change, and protection across the entity. Everything else follows. When you get the project team right, then working on FAR implementation is the best thing you can be doing in practice! Undertaking those ‘reasonable steps’ reviews, and ensuring each accountable person has the ‘information and control’ to discharge their obligations, is deeply fulfilling stuff.
4. Finfluencers (ASIC): The Federal Court has made permanent injunctions against social media finfluencer Tyson Robert Scholz; he cannot hosting online groups for which a membership fee is charged, and in which messages are exchanged by members about share trades (either in a group chat or through direct messages from Mr Scholz), without an AFSL, or carrying on a financial services business in Australia in contravention of s911A of the Corporations Act. Its a good result, though a bit of an odd one in my view — carrying on a financial services business without an AFSL is already illegal. The injunction does put him in contempt of court if he breaches it through. Hopefully it sends a message to the finfluencer community — they need it, as I said in the AFR here. With the reduction of financial services advisers post Hayne Royal Commission, people are looking for accessible advice. Finfluencer’s are filling the void, and there is a lot of risk here. If ASIC follows this ruling up with some targeted engagement, like the FCA does (it has actually partnered with social media stars), that is a good thing in my view.
5. Carbon trading (AFMA): the financial markets association and carbon market institute have entered into an affiliation agreement to facilitate carbon market design. AFMA is responsible for the OTC market i.e. derivatives, where CMA focuses on decarbonisation strategies, projects and investments. Carbon credits — which are often OTC based — are a big part of the strategy. They are financial products, so an AFSL is required to trade them. (Where things become super interesting, is where they are tokenised — but that is for another update.) It is an exciting partnership, and I am looking forward to seeing it develop!

Thought for the future: there is just so much happening this year on a policy front. FAR, crypto licensing, and more. Those with the skills should, in my view, play a part in helping policymakers and regulators. Australian’s like a challenge, and financial services reg is no different. Contributing your ideas to a consultancy or law firm who can then package them up in a broader submission is great if you’re time poor. Getting these things wrong takes years to undo, so we need to strive to get it right the first time!