Australian regulators weekly wrap — Monday, 19 June 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. Quality of advice (Government): the Government announced the Delivering Better Financial Outcomes package adopting the bulk of the recommendations made in Michelle Levy’s Quality of Advice Review to be developed over the second half of 2023 and early 2024. Which is excellent news, in my view! It was a great report. The Government’s response is broken down to three areas: 1) Stream one: Financial Advice: abolishing the safe harbour steps for meeting the Best Interests Duty; replace the Statement of Advice with a financial advice record; simplifying fee consent and renewal requirements; more flexible requirements around the displaying of Financial Services Guides; and, standardising consents for determining wholesale and sophisticated investors. 2) Stream two: Superannuation funds: remove restrictions on superannuation funds to provide retirement advice and information to their members; changes to the definitions of personal advice, general advice, relevant providers and the introduction of a Good Advice Duty; and, Stream three: New models: consult on the expansion of a Good Advice Duty to non-relevant providers not including banks that would also consider an expanded definition of personal advice; removal of the general advice warning; amendments to the design and distribution obligations. Stream 3 will also finalise implementation for Stream 1 proposals to abolish the statement of advice and removal of the safe harbour steps, to the relief of most advisers. A great result to a great paper — well done Michelle Levy and the Government here!
2. Cyber resilience (ASIC): ASIC-regulated entities, including publicly listed companies and other entities holding licences and authorisations, have been invited to take part in a survey to measure cyber resilience in Australia’s corporate and financial markets. It will be one of the largest conducted into Australia’s cyber resilience, and will measure entities’ current cyber security and controls, governance arrangements, and incident preparedness. An anonymised survey, after it closes, participants who elect to receive an individual report will receive insights into how they have assessed their current cyber resilience capability compared to those of industry peers. This one seems like a no-brainer to me, and I’d encourage all AFSL, and ACL holders to take the test for one of the biggest challenges of our current time.
3. ESG (ASIC): a strong message from Chairman Longo on the need to prepare for ESG changes, and the fact that sustainable finance is an important strategic priority for ASIC. He stated “Firms should be well advanced in embedding robust corporate governance practices ahead of more rigorous reporting requirements that are imminent in the standards being released by the ISSB in two weeks. These ambitious standards will require companies to adopt a systematic approach to collecting and analysing data across the company itself, and its supply chains. Preparation for that should be starting now.” He also anticipated a paper from Treasury on its expectations within the next fortnight. It will cover the above-mentioned standards, when they are intended to be adopted and come into operation, and a scaled introduction, depending on the size of entity. One certainly to be on financial firm’s radar, and follows the Chair’s speech on ESG not being a ‘trend’ earlier in the month here.
4. Onepath (APRA): APRA has imposed a fine of almost $1.5 million dollars on OnePath Custodians Pty Limited for failing to direct member contributions to a MySuper product. Under the SIS Act 1993 (Cth), trustees must direct member contributions to a MySuper product when the member has not advised the trustee where they would like their money invested. The 2017 MySuper changes were aimed at providing a simple, cost-effective, balanced product for the vast majority of Australian workers who are invested in the default option of their current fund. The trustee cannot use members’ money to pay the fine.
5. Banking / crypto (Hong Kong): Hong Kong regulators are planning a second meeting in less than two months to push banks to offer services to virtual-asset firms as the city seeks to become an international crypto hub. “The HKMA has consistently communicated the importance of banks following the risk-based approach to managing the risks of individual customers” the Hong Kong Monetary Authority stated. The same message needs to be given to Australian banks, following Westpac’s and CBA’s recent actions. Without reliable banking partners, it is very tricky for digital asset firms to service their customers, staff and contractual counterparties.

Thought for the future: FAR is on the Senate agenda for this week. The biggest financial reform in a generation, expect it to be passed this time. If you haven’t started your preparations, begin now — it takes longer than it may initially seem! Do get in touch if you’d like a practical FAR overview asset for your internal stakeholders. We’ve done just under 20 of them now (and their predecessors), so have an idea of the practical pitfalls.