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.
- Threshold transaction reports (AUSTRAC): AUSTRAC has released updated guidance on reporting threshold transaction reports when a customer conducts multiple cash transactions, following industry consultation on the draft guidance released in November 2021. A reporting entity providing multiple services to a customer that add up to A$10,000 or more previously had to decide whether to treat these multiple services as a single reportable transaction or multiple transactions for the purposes of TTR reporting. Under AUSTRAC’s updated guidance position, reporting entities must submit a TTR to AUSTRAC for each individual cash transaction of A$10,000 or more. When a customer makes multiple cash transactions, each individual transaction is considered to be a separate and distinct designated service. The guidance, and practical examples, can be found here.
- Derivatives (ASIC): ASIC has released a consultation paper proposing to remake its class order on the financial requirements for issuers of OTC derivatives to retail clients. The financial requirements in [CO 12/752] Financial requirements for retail OTC derivative issuers aim to ensure AFS licensees have adequate financial resources to operate their business in compliance with the Corporations Act, and to manage the operational risks inherent in the OTC derivatives market. For example, under the class order derivative issuers must meet a net tangible asset requirement to hold the greater of $1,0000,000 or 5% of average revenue.
- Ongoing fee arranges (ASIC): the obligation to give clients a fee disclosure statement (FDS) annually where there is an ongoing fee arrangement has applied since 1 July 2012. From 1 July 2021, two broad additional obligations have applied between both advisors and clients where there is an ongoing fee arrangement (OFA) in place. Importantly, these two additional obligations are for fee recipients: (a) to renew an ongoing fee arrangement on an annual basis e.g. 1 July 2022 and (b) to obtain a client’s written consent to deduct ongoing fees from a client’s account. It is a technical requirement that is catching a number of advisers flat footed at the moment — see our article this week for more detail!
- Market outages (ASIC): ASIC previously released Report 708 ASIC’s which sets out its expectations for industry in responding to a market outages. Market operators and participants are required to implement the expectations to maintain compliance with their obligations under the law and to ensure they can continue to service their clients during a market outage, like the one that occurred with the ASX equity market outage in November 2020. ASIC has publicly restated that it is continuing to call on market operators and participants to continue to implement its expectations to improve the resilience of the Australian equity market during outages, including by facilitating trading on alternative markets.
- Privilege protocol (ATO): the ATO has long had an issue with claims of privilege being used to shield documents from it. It successfully obtained documents subject to a claim of legal privilege from PWC earlier in the year (see here). It has now released a privilege protocol designed to assist taxpayers when making privilege claims in response to a formal information gathering notice. The protocol outlines: a recommended approach for assessing whether privilege applies; what the ATO recommends taxpayers to provide to to the ATO; and, what to expect from the ATO when taxpayers invoke a claim for privilege. The ATO has stated that: “It is voluntary to follow the protocol, but following it should help us to decide quickly how to treat your claim. If you choose not to follow the protocol, we recommend you explain to us where you have not done so and why. If you do not provide this information and we do not have sufficient information to make a decision on a claim, we are likely to make further enquiries.”
Thought for the future: my personal view is that Australia is a relatively soft-ball jurisdiction in terms of privilege. Regulators have historically rarely seriously tested it, and my observation of Aussie practitioners is that they are relatively blasé about it. The winds of change are blowing though, as the ATO ramps up and ASIC / APRA will follow suit (especially under FAR, which mandates “co-operation”). We aren’t quite at the stage the UK is, where the UK Serious Fraud Office specifically calls out waiver of privilege as a factor in determining whether the organisation gets co-operation credit in their guidelines. Privilege is definitely going to get tested in coming years though!