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.
- Regulatory performance (ASIC): the Regulator Performance Framework provides a set of six common KPIs for Australian Government regulators, and ASIC has just released its self-assessment of its performance against the KPIs in 2019–20. It felt it largely met its goals, for e.g. not unnecessarily impeding the efficient operation of regulated entities. What is interesting is the ancillary information ASIC provides to justify its position. Two areas stand out to me. First, enforcement. In 2019–20, there was: an 11% increase in the number of investigations; a 48% improvement in the time taken to file civil penalty proceedings; an increase in the total civil penalties imposed, from $12.7 million to $25 million; and, a 57% increase in the number of custodial sentences imposed (including those fully suspended). There was also a ‘greater focus on individual accountability in ASIC’s enforcement work in 2019–20, resulting in the number of individuals charged with non-summary criminal offences increasing by 35%, and the number of civil penalty claims against individuals increasing by 40%.’ Expect that trend to continue, especially when ASIC gets its hands on the Financial Accountability Regime later this year. Second, the analytics ASIC is increasingly using. ASIC has again emphasized that it is leveraging recent investments in its data capabilities to help it identify early warning signs of harm and misconduct and ensure its regulatory interventions are effectively designed and targeted, stating ‘Our work on whether fund managers’ investment products were ‘true to label’ (i.e. the product name aligned with the underlying assets) was based on data gathered from over 350 managed funds. We used a combination of tools, including risk-based surveillances (to identify products with inappropriate or confusing product labels), investigation, and intervention (sending letters of concern to regulated entities). We asked 37 funds to take corrective action to ensure their products are true to label’. More enforcement, and more tech in the undertaking of that enforcement are the key takeaways for me.
- Financial Regulatory Assessment Authority (Parliament): the second and third readings were agreed to on 26 May 2021 of the Financial Regulator Assessment Authority (Consequential Amendments and Transitional Provisions) Bill 2021. An important piece of legislation, first, it establishes the Financial Regulatory Assessment Authority and provides for its functions and powers. Those are to assess and report on the effectiveness and capability of APRA and ASIC. APRA and ASIC are required to cooperate with the Authority to enable the Authority to perform its functions and exercise its powers. This cooperation includes providing information and documents requested by the Authority. Second, the legislation sets out how members and staff members of the Authority are appointed or made available, and how the Authority makes decisions (including delegations). Third, to safeguard information that APRA and ASIC provide to the Authority, it prohibits the unauthorised use or disclosure of protected information provided to the Authority (contravention of the prohibition is a criminal offence). The creation of the body is in response to the findings of the Financial Services Royal Commission, which highlighted that while APRA and ASIC operate within complex accountability frameworks, the regulators’ effectiveness in delivering on their mandates is not subject to consistent and independent expert review over time.
- LIBOR (ASIC): Nathan Bourne, ASIC’s Senior Executive Leader, Markets Infrastructure, recently spoke about the London Inter-Bank Offered Rate (LIBOR) transition i.e. it being phased out by the end of this year. He stressed that firms need to make the transition away from LIBOR a focus, and that increased engagement from the buy-side firms and corporates — both on the identification of relevant alternative reference rates and operational readiness — will be key. Interestingly, he expressed ASIC’s position that from a ‘…conduct perspective, broad reliance on fallback language and legislative solutions does not prioritise positive client outcomes because it does not guarantee legal certainty. In addition, this reliance does not ensure firms and their counterparties are ready for the transition.’ In other words, relying on fallback reference rates in contractual drafting may not be enough to promote good customer outcomes — there is clearly an asymmetry of information here which could limit customers’ ability to negotiate terms.
- ME Bank (ASIC): ASIC has filed criminal charges against Members Equity Bank Limited in the Federal Court of Australia . These charges relate to alleged contraventions of sections 12DB(1)(g) and 12GB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (false or misleading representations) and sections 64(1) and 65(1) of the National Credit Code (Cth) (relating to notifications around interest rate changes), between 2 September 2016 and 3 September 2018. The charges relate to ME Bank allegedly failing to notify customers about interest rate changes attached to its home loans. According to media reports, a glitch occurred when transferring data onto ME Bank’s new core banking platform, which caused a mix of customers to be over-charged on interest-only and fixed interest mortgages. Criminal charges for misleading & deceptive conduct — which are strict liability offences — are very rare, so it is will be interesting to see where this case goes.
- AMP (ASIC): a busy week for the corporate regulator, ASIC has commenced civil penalty proceedings in the Federal Court against five companies that are, or were, part of the AMP Limited group, alleging that these entities were involved in charging life insurance premiums and advice fees to more than 2,000 customers despite being notified of their death. ASIC seeks declarations of contraventions of the ASIC Act and Corporations Act. ASIC is also seeking pecuniary penalties and other orders to be made by the Federal Court. The concise statement is here, and the main thing to focus on for me — these breaches are all old news, and have been remediated by AMP — is ASIC’s continued reliance on 912A of the Corporations Act 2001 (Cth) i.e. ‘efficiently, honestly and fairly’ as it is a now a civil penalty provision.
Thought for the future: ASIC is no delayer when it comes to technology. Its report in January 2021 covered the voice analytics / technology-assisted-review ASIC is deploying to sift through huge amounts of data, and this week’s scorecard covers some of the tools it has out there in the ether to pick up potential misleading and deceptive conduct. Having recently assisted a client who has been on the other side of one of these notices, I was rather impressed. Aside from being aware of this general trend, my continued sense is that technology needs to meet technology and financial services businesses need to continually reinvest in technology to meet what are increasingly complex and voluminous regulatory burdens obligations placed on them.