Australian regulators weekly wrap — Monday, 5 July 2021

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. Securitisation trusts (Accounting): securitisation trusts that undertake to prepare financial reports in accordance with AASBs will have to prepare general purpose financial statements from 1 July. AASB 2020–1 Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities removed the ability for many entities to prepare special purpose finance statements — they must now prepare the more onerous general purpose financial statements.
2. Opening banking (Treasury): Treasury has released exposure draft amendments to the Consumer Data Right rules and explanatory materials for consultation (version 3 of the rules). Designed to increase the take-up, they: introduce a sponsored tier of accreditation and a CDR representative model; allow consumers to share their data with trusted professional advisers; allow participants to share CDR insights with consumer consent for specific purposes; and create a single consent data sharing model for joint accounts. The consultation ends on 30 July 2021.
3. Money laundering risk (AUSTRAC): a money laundering and terrorism financing) risk assessment released by AUSTRAC shows a medium level of risk to Australia’s non-bank lending and financing sector. AUSTRAC analysed transactional and suspicious matter reporting by the sector between 1 February 2018 and 31 January 2019. The main threat facing the sector is fraud, particularly loan application fraud, identity fraud and welfare fraud. Non-bank lenders and financiers are also a target for money laundering, relating predominantly to unexpected early loan payouts. My top read for the week, you can access the report here.
4. Market integrity rules (ASIC): the corporate regulator has released the Proposed amendments to the ASIC market integrity rules and other ASIC-made rules (CP 342). ASIC’s proposals include amendments to the Securities Market Integrity Rules covering accredited derivatives advisers, trades with price improvement, trade confirmations for non-retail clients and regulatory data reporting; amendments to the Futures Market Integrity Rules covering prohibited employment, suspicious activity reporting and client authorisations; amendments to ASIC-made rules generally, covering merits review, waivers and penalty amounts for breaches of the rules. A dense consultation, but with some good ideas that will hopefully reduce the regulatory burden on market participants.
5. Source of funds (AUSTRAC): KYC procedures, including where appropriate, taking reasonable measures to identify the source of a customer’s wealth and the source of a customer’s funds are an important part of AML/CTF programs. AUSTRAC has released source of wealth and source of funds considerations, including: what is a customer’s source of wealth and source of funds?; why is it important to know a customer’s source of funds and source of wealth?; when would source of funds and source of wealth enquiries be appropriate?; what are reasonable measures?; I have undertaken source of funds and source of wealth enquires, now what? You can read the guidance here.

Thought for the future: I have been catching up on my case rereading (it often takes more than one attempt for me), and this weekend it is Westpac Securities Administration Ltd & Anor v Australian Securities and Investments Commission [2021] HCA 3. It massively broadened the scope of ‘personal advice’ under Chapter 7, including by stating that where there is a pre-existing relationship, a reasonable person may expect the licensee would have taken into account the the consumer’s objectives, financial situation and needs when communicating with the client i.e. providing ‘personal advice’. Many distributors have longstanding relationships with clients, so if they are operating under ‘general advice’ models (as many white labelling firms do) then they are going to need to put measures in place to protect themselves. If they do not, they run the risk of increased liability as provide personal advice comes with far more stringent regulatory requirements. This is especially so when design & distribution comes into play in October 2021, as it requires suitable products only to be given to clients…