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.
- Stop orders (ASIC): an absolutely massive week for stop orders! 1) ASIC has made an interim stop order preventing Mitrade Global from opening trading accounts or dealing in contracts for difference or margin FX contracts to retail investors. Mitrade relied on a retail investor questionnaire with significant flaws as a key step for compliance with its obligations. When applying for a trading account, Mitrade’s questionnaire gave prompts to a prospective retail investor to review any ‘unacceptable answer’ that would indicate that the investor was not likely to be in the target market for the products. Further, Mitrade allowed retail investors unlimited attempts to pass the questionnaire. Don’t try to ‘game’ the system is the takeaway here. 2) ASIC also made an interim stop order preventing Humm BNPL from issuing its BNPL product because of deficiencies in its target market determination. ASIC alleges it failed to appropriately define the target market - Humm’s target market only excluded a narrow subset of consumers who may find it difficult to make payments. The TMD also did not contain appropriate distribution conditions - it did not contain details of how Humm, or its distributors, would assess whether a consumer meets the product’s eligibility criteria. The TMD also failed to explain how Humm’s origination and application processes would ensure that the product was likely to reach consumers in the target market, and did not contain specific review triggers to monitor consumer outcomes in relation to consumers missing payments. 3) ASIC issued a stop order to Diversa Trustees — the first one on a super fund! ASIC said that the TMD for the Spaceship Super has too broad of a target market and does not adequately account for the product’s risks, as the investment options were too low to be consistent with investors in the target market, who were identified as seeking high returns, and also that there was a mismatch between the investment risk profile of the options versus the investors. Further, there had been insufficient consideration given to associated investment risk features, like concentration, market and currency risks. In order words, it was too conservative in terms of investment strategy for what investors agreed…
- Cyber (APRA): APRA has written to all APRA-regulated entities on need to deploy multi-factor authentication as one of the better ways to prevent unauthorised access to sensitive and private information. The letter outlines APRA’s views on gaps in the implementation of MFA across its regulated industries, and set outs APRA’s expectation that entities review the coverage of MFA in their operating and technology environments. My top read for the week, expect this to form part of the updated CPS 234 when it is issued shortly.
- ePayments Code (ASIC): the new ePayments code takes effect this week, which includes: extending the code to payments made using the new payments platform; compliance monitoring and data collection; mistaken internet payments; unauthorised transactions; complaints handling, and facility expiry dates. You can read more here.
- Modern slavery (Parliament): the review of the Modern Slavery Act 2018 (Cth) has been tabled in parliament. You can read the report here. The report made 30 recommendations, including: amendments to the Act, such as the threshold and scope of entity reporting; introducing penalties for specific non-compliance e.g. not filing a modern slavery statement; expanding guidance material; and, the role of the Anti-Slavery Commissioner in relation to the Act. Recommendation 11 is in interesting one to me, which suggests that the legislation be amended to provide that a reporting entity must have a due diligence system that meets the requirements mentioned in rules and, in the entity’s annual modern slavery statement, explain the activity undertaken by the entity in accordance with that system.
- Web3 (Senate): the Australian Senate submissions for the Digital Assets (Market Regulation) Bill 2023 are out! Take a look at them all here, including Clyde & Co’s one below (with big thanks to those clients who helped us with drafting feedback). Happy reading in relation to what will be an absolutely critical industry for Australia (and the world) in the coming years!
Thought for the future: DDO is easily moving to one of the top risks for product issuers. If you haven’t revisited your TMDs, and DDO frameworks since October 2021, I can’t encourage you enough to do so…