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.
- Crypto stop orders (ASIC): ASIC has just issued an interim stop order on Holon (its tenth to date), which offers various crypto funds to retail investors, on the basis that it thinks that Holon has not appropriately considered the features and risks of the funds in determining their target markets. Holon cannot issue interests in, give a PDS for or provide general advice to retail clients recommending investments in its crypto funds. Each of Holon’s funds are invested in an individual crypto-asset — bitcoin, ether and filecoin. ASIC has said that “Crypto-assets are highly volatile and complex, making concentrated investments in individual crypto-assets very risky and speculative. Investors are likely to experience significant price volatility and deep negative returns in periods of asset price decline.” In its PDSs, Holon has disclosed the risk that assets in the Funds could face a total loss of value. However, ASIC does not consider that the PDS with its risk factors matches the target market. This includes investors with a potentially medium, high or very high risk and return profile who are intending to use the fund as a satellite component (up to 25%) of their investment portfolio; and those intending to use the fund as a solution/standalone component (75–100%) of their investment portfolio. Two difficulties arise here. The first, is that this is arguably a finer line of judgment ASIC is exercising than in previous interim stop orders. Second, unlike derivatives, equities, bonds and other financial products, there is not the same level of information to test for fund managers e.g. PDSs. I don’t much like this one — I think ASIC has overstepped, and you can read more in our article here.
- Key legislation (Parliament): the Senate Economics Legislation Committee has requested an extension for its report to 24 October 2022 for the following items of legislation: Financial Accountability Regime Bill 2022; Financial Sector Reform Bill 2022; Financial Services Compensation Scheme of Last Resort Levy Bill 2022; and, Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022. Expect them to get approval, and be passed by 1 December 2022 i.e. end of Spring sitting.
- Annual review (AFCA): AFCA has released its annual report for FY 21–22. Key statistics are: 72,358 complaints received. Up 3% on 2020–21; 71,152 complaints closed. Down 4% on 2020–21; the average time to close a complaint was 72 days; 17,826 open cases. Up 9% on 2020–21; $207,733,327 in compensation was provided to consumers through AFCA’s dispute resolution processes. Most interestingly to me, AFCA stated that its investigation into systemic issues resulted in payments of more than $18M. One I have seen in practice increasingly...
- Scams (ASIC): ASIC is alerting investors about a suspicious website, appasiccoin.org, using crypto to scam Australians. The operators of the website mislead investors by claiming its investments are endorsed by ASIC. The operators also do not have an Australian financial services licence. You can see the website here — it is safe to click on (though obviously don’t invest!) — and I think it is a great call out by ASIC. Which has me thinking. ASIC should create a list of scam websites like the UK FCA does, which can be checked at any time. You can see the FCA’s list here, which is a great permanent tool I used to use all the time.
- Financial crime academy (AUSTRAC): Commonwealth Bank of Australia and Griffith University have established an academy to focus on financial crime, which has been applauded by AUSTRAC. The Academy will offer financial crime investigation and compliance programs. Combatting financial crime is a growing specialisation, and one which is impacted by a shortage of skilled workers in Australia; Griffith has always been a leader in financial crime research and practical subjects, so it is great development for our industry.
Thought for the future: I do feel somewhat sorry for Kim Kardashian getting a US $1.3M fine for promoting a crypto token, EthereumMax, outside securities laws (which require disclosure of the sum paid to promote the security). That token is a security over in the US, but bitcoin is not according to the US SEC. A bit like here where a derivative or MIS product is a financial product, but other cryptocurrencies are not… for now. Hopefully we can get some clarity soon, once the Albanese Government finishes its token mapping project (the Bragg bill is not our answer, for anyone wondering).