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.
- General v. personal advice (Court): the High Court handed down its decision in Westpac Securities Administration Ltd v Australian Securities and Investments Commission  HCA 3, dismissing Westpac’s appeal against the Federal Court‘s decision that the marketing campaign by Westpac to encourage customers to roll over superannuation accounts into their account held with Westpac involved the provision of “financial product advice” that was “personal advice” within the meaning of section 766B(3) of the Corporations Act 2001 (Cth) (Act) i.e. instead of “general advice”. As a result of the advice being “personal advice”, there was found to be a contravention of the duty in section 961B of the Act to act in the best interests of the customers in making the relevant recommendations to accept the rollover service as well as a breach of the obligation to act fairly under section 912A(1)(a) of the Act i.e. “efficiently, honestly, and fairly”. Section 766B(3)(b) of the Act defines “personal advice” so as to include “financial product advice” given or directed to a person in circumstances where a reasonable person might expect the provider to have considered one or more of the person’s objectives, financial situation and needs (or, of course, where they have in actuality). “General advice” is essentially anything that is not “personal advice” under section 766B(4) of the Act. I feel rather sorry for Westpac; the difference between general and personal advice can be fiendishly difficult to determine depending on the fact pattern of a particular case, reliant as it is on what a “reasonable person” would identify. A senior colleague put me onto A.P. Herbert’s excellent book Uncommon Law recently, which had this to say about the legal construct of the reasonable person: “Devoid, in short, of any human weakness, with not one single saving vice, sans prejudice, procrastination, ill-nature, avarice, and absence of mind, as careful for his own safety as he is for that of others, this excellent but odious character stands like a monument in our Courts of Justice, vainly appealing to his fellow-citizens to order their lives after his own example.”
- Prudential priorities (APRA): APRA has issued its policy and supervision priorities for 2021. In terms of policy areas, key areas it is going to focus on include the long awaited new prudential standard on remuneration (CPS 511), updating prudential standards on operational risk, governance and risk management, and consulting with industry on guidance for climate change financial risk. For supervision activities, APRA plans to focus on increased scrutiny of entities’ cyber security capabilities, embedding the new remuneration standard, conducting a risk culture survey, undertaking a range of GCRA-related supervisory reviews and deep dives, and working to close risk governance issues currently requiring capital overlays. No particular surprises here, and to me the greatest amount of work will rest with the remuneration update and cross-linking it with other regulatory developments for 2021 e.g. the Financial Accountability Regime.
- Licence cancellations (ASIC): ASIC has been busy cancelling licences this past week. It has cancelled the Australian financial services licence (AFSL) and Australian credit licence (ACL) of based Mortgage and General Financial Services. The firm failed to demonstrate that it had the competence and resources to provide financial services and credit activities as required under its licences, as it failed to replace its ‘ key person’ (a species of responsible manager) after the previous one passed aware and failed to lodge its accounts under its AFSL for the financial years ending in 2017, 2018 and 2019. ASIC has also cancelled the ACL of Golden Securities Pty Ltd on the basis Australian Golden Securities did not engage in the credit activities authorised by the licence. Under the National Consumer Credit Protection Act 2009 and National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009, if a licensee held an Australian Credit Licence before 18 February 2020, ASIC may cancel the licence if the licensee has not engaged in the credit activities authorised by the licence before the end of the 6 month period commencing from 18 February 2020. A timely, if not at all surprising decision; the key message here is to replace your responsible managers and key persons within the designed timeframes, lest your licenses come under regulatory security and use it i.e. your licence or lose it.
- False statements (ASIC): Mr Ding Yang, director of Advanced Choice Finance Pty Ltd (ACF), a former Melbourne-based mortgage brokerage company, has pleaded guilty to aiding and abetting ACF in knowingly making a false statement in a credit licence annual compliance certificate lodged with ASIC. In short, he lodged a credit licence annual compliance certificate with ASIC in which he falsely certified that none of ACF’s fit and proper people i.e. himself had their accreditation cancelled by a lender or their membership with an aggregator terminated. In fact, he had had his accreditation cancelled with one lender (Bank of Melbourne) and one aggregator (Connective). A timely reminder that, while ACL compliance statements lodged with ASIC are often completed in a rush, there are very real consequences for the information that is provided to ASIC on them.
- Climate risk (ASIC): ASIC Commissioner Cathie Armour has given a paper in in which she says disclosing and managing climate-related risk is a key director responsibility. Nothing new in there, and it follows on the back of ASIC surveillance began in the first half of 2019–20 of several large listed companies spanning a range of industries to see how they were tackling climate risk disclosure. What is helpful in the paper — and my top read for the week — is the the succinct guidance given to directors: 1) Consider climate risk — directors and officers of listed companies need to understand and continually reassess existing and emerging risks that may be applicable to the company’s business, including climate risk; 2) Develop and maintain strong and effective corporate governance — strong governance facilitates better information flows within a company and facilitates active and informed engagement and oversight by the board in identifying and managing risk; 3) Comply with the law — directors of listed companies should carefully consider the requirements relating to operating and financial review (OFR) disclosures in annual reports under s299(1)(a)© of the Corporations Act 2001; and 4) Disclose useful information to investors — ASIC recommends listed companies with material exposure to climate risk consider reporting under the Financial Stability Board’s Taskforce for Climate-related Financial Disclosures framework. To me, as matter of pure corporate law, and completely agnostic to the question of whether climate change is man-made or otherwise, there is absolutely nothing special about climate change risk. It is like any other risk that needs to be recognised and mitigated by company directors, for example liquidity risk. Still, with all this focus on it by ASIC and APRA, it is worth board dedicating their time to this area…
Thought for the future: the UK FCA has announced that buy-now-pay-later products are to be regulated be regulated. The announcement comes as a review of the unsecured credit market recommends bringing interest-free buy-now-pay-later into FCA supervision. UK legislation will be forthcoming soon. It will be interesting to see what happen in other jurisdictions, in particular (with thanks to a friend who gave me the heads up) in NZ where a BNPL Code of Practice is well progressed and in the US given the new Biden administration and related CFPB shake-up.