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.
- Conflicted remuneration (ASIC): In Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2)  FCA 786 the Federal Court of Australia held that conflicted remunerations contraventions took place for the Respondent, Select AFSL. Select AFSL was part of a corporate group structure which retailed life insurance products where the remuneration of sales agents was linked to the number of sales they made; although they were paid a base salary, they earned commission on products sold and could obtain benefits as a result of sales plus other incentives such as a cruise to the Gold Coast, trips to Las Vegas and Hawaii, and a Vespa scooter. Abraham J concluded that AFSL Select had contravened its AFSL general obligations under s. 912A(1)© of the Corporations Act. Importantly, by encouraging the boiler room culture, His Honour also found that the director Mr Howden had breached his directors’ duties owed to AFSL Select under s 180(1). My top read for the week, this decision is an important one in the evolving conception of the “efficiently, honestly and fairly” duty and directors duties.
- SMSF auditors (ASIC): ASIC has acted against eight self-managed superannuation fund auditors over the period 1 March 2022 to 30 June 2022. It deregistered five SMSF auditors and imposed additional conditions on the registration of three others. These actions resulted from breaches of obligations including auditing and assurance standards, independence requirements, and registration conditions, or because ASIC was satisfied the individual was not a fit and proper person to remain registered. Here is the thing — this appears to be ASIC’s MO at the moment. Lots of litigation and enforcement action, but not ones with a systemic or policy element e.g. Shipton’s responsible lending cases.
- Short term credit (ASIC): ASIC has made product intervention orders for short term credit and continuing credit contracts. ASIC’s orders prohibit the provision of short term credit and continuing credit contracts which involve unreasonably high fees charged to retail clients, in excess of the cost caps in the relevant exemptions in subsections 6(1) and 6(5) of the National Credit Code. The EM for the decision is here. An interesting thought — why ban something already subject to civil penalties under the NCC? Seems like ASIC is compensating for regulatory design here…
- Credit reporting (ASIC): banks need to need to supply financial information to credit reporting bodies under the mandatory comprehensive credit reporting regime. From 1 July 2022, comprehensive credit information also includes information about financial hardship arrangements. ASIC has adopted a temporary no-action position to enable large banks to withhold the reporting of certain credit information on consumer credit reports where reporting the information could lead to consumer harm, including where a consumer may be the victim of family violence. For example, a joint loan where the DV victim has agreed a hardship plan with the bank (unbeknownst to the abuser). Here is hoping it becomes a permanent relief position shortly!
- ‘Crypto winter’ (Bank of England): an interesting speech by Sir Jon Cunliffe from the BOE, where he succinctly pulled together some recent lessons from the drop in the crypto market. “1) Technology does not change the underlying risks in economics and finance; 2) Regulators should continue and accelerate their work to put in place effective regulation of the use of crypto technologies in finance; 3) This regulation should be constructed on the iron principle of ‘same risk, same regulatory outcome’ [the same regulation to the risks inherent in the provision of a financial service no matter how it is provided]; and, 4) Crypto — technologies offer the prospect of substantive innovation and improvement in finance. But to be successful and sustainable innovation has to happen within a framework in which risks are managed: people don’t fly for long in unsafe aeroplanes.” Sensible comments to be sure, though in my view the greater burden of work sits with policymakers and regulators. We need effective regulation to be put into play to support the industry and protect consumers, so lets get on with consultation on CASSPrs (warts and all) in Australia under the Albanese Government.
Thought for the future: next sitting dates are 26 July to 4 August 2022. Expect to see many prorogued non contentious legislation revived and passed….