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. FAR (ASIC): Information from an ASIC session with the Chair and Commissioners this week in which I took the following notes. FAR will be passed in Spring sitting. It will come into effect for ADIs in March 2023. It will come into effect for Super / Insurers in March 2024. Finally, there is lots of work going on in the background with APRA to administer this one.
  2. Advice (Treasury): Treasury conducted a review is to consider whether changes should be made to the regulatory framework applying to financial advice to improve the accessibility and affordability of financial advice. Led by the very capable Michelle Levy, she has now put forward a number of big proposals. In the interests of brevity, the three main ones are: 1) The financial services regime should regulate the provision of ‘personal advice’. The definition of ‘personal advice’ should be somewhat broader so it is clear that it applies whenever a recommendation or opinion is provided to a client about a financial product (or class of financial product) and, at the time the advice is provided, the provider has or holds information about the client’s objectives, needs or any aspect of their financial situation. 2) The regime should no longer regulate ‘general advice’ as a financial service and the definition should be removed together with the obligation to give a general advice warning. 3) The financial services regime should require a person who provides personal advice to provide ‘good advice’. ‘Good advice’ is advice that would be reasonably likely to benefit the client, having regard to the information that is available to the provider at the time the advice is provided. I think the suggestions are good ones, though will be hard fought. They shouldn’t be. The advice industry has been decimated, but Australians need access to advice now more than ever as the financial services landscape becomes ever more diversified and complicated and a recession looms.
  3. Litigation funding (Treasury): Easy come, easy go. Treasury has released draft Regulations is to amend the Corporations Regulations 2001 to provide litigation funding schemes with an explicit exemption from the managed investment scheme, AFSL, product disclosure and anti‑hawking provisions of the Corporations Act 2001 for consultation. A flashpoint between the blue and the red teams, which I don’t need to delve into the history of again, for would-be legal lobbyists our there I think there are better things to consult on than this one given the likelihood of the Government changing its mind…
  4. Breach reporting (ASIC): Information from an ASIC session with the Chair and Commissioners this week in which I took the following notes. AISC knows there are issues to be ironed out. Quite an inconsistent approach taken across the industry. No legislative changes, or ASIC relief in the pipeline though. More guidance coming — no ETA though. ASIC is more focused consultation with key industry groups. There is about 2–3 cycles before they start name dropping licensees in connection with breaches. ASIC plans to deploy technology and AI to help them review the breaches — too much for human review. They see industry as needing to adopt technology as well.
  5. High-risk retail offers (ASIC): ASIC is warning brokers to be careful about or reconsider offering high-risk products and services to retail investors, such as securities lending. It has called out design features that may not be fair or appropriate, including: bundling of securities lending with other services or automatic opt-in of clients to securities lending (i.e. clients are required to take active steps to opt-out); no pre-qualification or vetting of investors (e.g. based on experience, assets or income); or, a fee split that is heavily skewed in favour of the provider. ASIC has also called out brokers offering crypto products alongside shares and other regulated financial products through their trading apps. ASIC has said that it is “concerned this may give investors a false sense of security, leading them to believe crypto-assets have the same protections as regulated financial products or they may underestimate the risks.” All the more reason we need to get some appropriately calibrated rules rules in place, like the UK and US, to separate the good crypto market participants from the bad!

Thoughts for the future: regulation moves in waves. Right now, 4 years post the Royal Commission, we are near the zenith. Consumer protection is front of mind. While important, undoubtedly, is consumer protection really the first priority when determining the regulation of blockchain (which is much broader than its utility for financial services)? How much weight should be given to it?

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