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.
- Litigation funding schemes (ASIC): ASIC has extended the relief from certain dollar disclosures in PDSs for litigation funding schemes in ASIC Corporations (Disclosure in Dollars) Instrument 2016/767 until 1 October 2026. Relief has been extended by ASIC Corporations (Amendment) Instrument 2022/264. The theory is that public disclosure of some categories of information could provide a tactical advantage to opposing parties in class actions and may not be in the interests of scheme members, which makes sense.
- Central bank crypto currencies (BIS): emerging market economy central banks have increasingly engaged in projects related to central bank digital currencies (CBDCs). The stage of their engagement — research, pilot or launch — varies according to differences in country circumstances, including the availability of digital infrastructure, their focus among different policy objectives, and the attendant motivations and concerns. The Bank of International Settlements has released papers from the central banks of these economies which explored issues such as: the main objectives of introducing CBDCs; the guiding principles of CBDC design and data governance; challenges of CBDCs for monetary policy, financial intermediation and financial stability; the implications of CBDCs on financial inclusion; and the cross-border aspects of CBDCs. A fascinating read, the papers discuss the key motivations for CBDC issuance as well as the primary concerns. Achieving greater payment system efficiency is at the heart of these central banks’ motivations. They also place great emphasis on financial inclusion and are concerned about cyber security risks, potential bank disintermediation and cross-border spillovers.
- Fintech collaboration (Treasury): the Australian Treasury and the Monetary Authority of Singapore have signed the Australia-Singapore FinTech Bridge Agreement to strengthen cooperation between the FinTech ecosystems of both countries. The agreement sets out a framework deepen bilateral and multilateral cooperation on FinTech; support the mutual establishment of FinTechs looking to expand in each other’s markets; build on current engagements to strengthen linkages between Australia and Singapore for policy officials, regulators, and industry groups; explore joint innovation projects on emerging issues in FinTech to help the industry navigate through a constantly evolving space, to share information on emerging market trends, and to learn from the experiences in each jurisdiction. Interestingly, in relation to the last point, this includes collaboration in areas such as blockchain and distributed ledger technology, digital identities, cross-border data connectivity, data portability, and the application of FinTech to promote sustainable finance. Since Singapore is a leader in crypto, this can only be to Australia’s benefit.
- Compliance failures (ASIC): The Federal Court has ordered Westpac to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses. The six categories of matter against Westpac concern: 1) Fees for no service — deceased customers: Over a 10-year period, Westpac charged over $10.9 million in advice fees to over 11,800 deceased customers for financial advice services that were not provided due to their death; 2) General insurance: Westpac distributed duplicate insurance policies to over 7,000 customers for the same property at the same time, including 3,899 customers since 30 November 2015, causing customers to pay for two (or more) insurance policies where they had no need for the additional policies; 3) Inadequate fee disclosure: Westpac and related advice businesses charged ongoing contribution fees for financial advice to retail customers without disclosing, or properly disclosing those fees. Over eight years, at least 25,000 customer accounts were charged at least $10.6 million in fees that were not disclosed, or properly disclosed; 4) Deregistered company accounts: Westpac allowed approximately 21,000 deregistered company accounts, holding approximately $120 million in funds, to remain open and continued to charge fees on those accounts. Westpac allowed funds to be withdrawn from these accounts that should have been remitted to ASIC or the Commonwealth i.e. if they were trust property; 5) Debt onsale: Westpac sold consumer credit card and flexi-loan debt to debt purchasers with incorrect interest rates. These interest rates were higher than Westpac was contractually allowed to charge; and, 6) Insurance in super: Westpac subsidiary, BT Funds Management charged members insurance premiums that included commission payments, despite commissions having been banned under the FOFA reforms. A steep penalty, and a reminder of the importance of governace, risk and control frameworks in the aftermath of the Hayne Royal Commission…
- Challenger banks (FCA): a review by the UK FCA has found that UK challenger banks need to improve how they assess financial crime risk, with some failing to adequately check their customers’ income and occupation. In some instances, challenger banks did not have financial crime risk assessments in place for their customers. Challenger banks aim to compete with traditional high street banks using smarter technology and more up-to-date IT systems. Many are recent entrants to the UK financial markets, with online only business models and offering financial services through smartphone apps. The review, conducted over 2021, identified a rise in the number of AML/CTF Suspicious Activity Reports reported by challenger banks, raising concerns about the adequacy of these banks’ checks when taking on new customers. Interestingly, it also found some bright spots — for example, innovative use of technology to identify and verify customers at speed.
Thought for the future: not long now until ASIC first publicly reports on the number of breaches individual firms have made i.e. June 2022! I have spent the weekend looking through the independent research CoreData has put together from over 160 organisations on the numbers of breach reports, types of breach reports and other challenges the regime has thrown up in its first 6 months. For a copy of the report, sign up to the release webinar here on 28 April: https://www.lawcadia.com/blog/breach-reporting-in-australia