Australian regulators weekly wrap — Monday, 4 May 2020

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. Lenders’ queries (ASIC): many financial services entities have written to ASIC seeking guidance on a number of matters around the regulation of lending during the COVID-19 pandemic. With respect to the lenders, ASIC has responded to provide clarity on issues of hardship, responsible lending and communication in its letter here. (It helps having an excellent lobby group, in the form of the ABA!) My top read for the week, the letter addresses in detail some nuances of responsible lending applications e.g. to hardship variations, the application of ‘efficiently, honestly and fairly’ in some instances e.g. it is okay to take longer for processing hardship requests given COVID-19, the issue of an exemption under s.187 of the NCC regarding electronic transactions, which imports the requirements of the Electronic Transactions Act 1999 (Cth), and approach to guarantor notice requirements and variation notice requirements. I think it is very useful, particularly for those required to comply with responsible lending obligations. I do disagree with ASIC when it has said that capitalisation of interest onto a loan does not result in a credit limit increase under the contract though i.e. triggering responsible lending obligations. My reading of “amount of credit” under s3(2) of the NCC and “credit limit” and “credit” under s. 5 of the NCCP results in the following thinking. a) interest charges and any fees payable by a customer under a loan do not form part of the “amount of credit”; and b) In effect, what this means is, where interest charges and fees and charges owed by the customer to a credit provider under the credit contract then fall into arrears, and after applying for and being granted hardship relief , by the credit provider, the customer’s arrears (including interest and fees payable), are capitalised into the loan by way of variation, the interest and fees portion from the variation date do in fact amount to an increase in the “credit limit”. ASIC’s approach seems sophist to me. While it would no doubt be interesting to argue about in court, since lenders won’t find themselves there unless ASIC takes them it is an utterly moot point!
  2. Opening Banking (ACCC): three-month exemptions have been granted to financial services providers required to share product reference data by 1 July 2020, due to the impact of the COVID-19 pandemic. The temporary exemptions under the Consumer Data Right, until 1 October, will apply to non-major ADIs, including non-major banks, building societies and credit unions, and extend to non-primary brand products offered by the major banks. (The major banks have been sharing product reference data since July 2019.) Product reference data refers to information about a bank’s rates, fees and features of banking products. This data can be used by businesses, such as comparison sites, to compare products in the market. The revised draft rules are accessible here, and again this strikes me as very sensible; in terms of regulatory reform projects, CDR is definitely in the heavyweight category in terms of the time and resources it takes up (along with FAR and anti-hawking).
  3. Interest Rates Inquiry (ACCC): on 14 October 2019, while the financial services industry was still feeling the post-Hayne heat, the Treasurer directed the ACCC to conduct an inquiry into home loan pricing. The Treasurer directed that the inquiry cover the period from 1 January 2019. The Home Loan Price Inquiry interim report has now been released. It examines home loan prices charged by the big four banks between 1 January 2019 and 31 October 2019. Key findings are: a) the big four banks considered various factors as they decided whether to pass on the RBA’s June, July and October 2019 rate cuts; b) recovering profits was central to their decisions to not always fully pass through the lower rates to mortgage customers; c) the big four banks benefitted from a sustained decrease in their funding costs during much of 2019; and d) home loan pricing practices continue to make it difficult for consumers to compare different mortgage products — headline rates did not accurately reflect the price most big four bank customers actually paid for their home loans, because the overwhelming majority of customers received discounts, including opaque discretionary discounts. The ACCC’s final report, scheduled for release later in 2020, will consider barriers to consumers switching to alternative home loan suppliers. I personally think that that will be the more interesting read, as there is nothing overly surprising in this report.
  4. Capital raisings (ASIC): the ASX has been doing its bit to assist listed companies to raise capital given the economic disruption being caused at the moment. The main changes relate to the temporary lift in placement capacity from 15% to 25% through a class waiver. They come with a cost through — extra disclosure. ASIC has come out and stated that supports the enhanced disclosure requirements for placement allocations and share purchase plans that are being conducted by companies using the temporary emergency capital raising waiver, but stressed the increased disclosure required. Expect lightening fast capital raises to be on ASIC’s radar… Commissioner Price said: ‘Directors should act in the best interests of the company in making fundraising decisions. They should consider not only speed and certainty of fundraising but also fairness considerations. Companies should be as transparent as possible and be prepared to explain to their shareholders the fundraising decisions they have made.

Thought for the future: I think that the ABA’s queries to ASIC, and ASIC’s response, are great. Regulators owe a duty to the regulated to convey their expectations as much as possible. Now for the other financial services industry groups, advisers and representatives to follow the ABA’s lead and seek to extract useful information to assist industry participants who will also have their own queries e.g. insurers and super.

(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)



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