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.
- DDO (ASIC): ASIC recently undertook an risk-based review of how investment product issuers are meeting the DDO, and has found serious shortcomings. Report 762 Design and distribution obligations: Investment products (REP 762), found a significant number of the product issuers made deficient TMDs, with poorly defined target markets and unclear or inadequate product governance arrangements. With over 30 interim stop orders issues by ASIC thusfar under the regime, if you haven’t revisited your TMDs, and governance frameworks since October 2021 then now is the time! ASIC identified in its report: target markets defined too broadly (15 stop orders); unsuitable investor risk profiles used (21 stop orders); inappropriate levels of portfolio allocation used (10 stop orders); unsuitable investment timeframes and/or withdrawal features, not reflecting the product’s risks and liquidity profile (18 stop orders); and, inappropriate or no distribution conditions (13 stop orders). And all that is even before the review and amendment obligations come into effect (see the ASIC v AMEX case here)!
- Misrepresentations / life insurance (Federal Court): a slightly delayed one — I am catching up on my piled up court cases — but super important one. On 17 March, the Full Court of the Federal Court handed down its decision in AIA Australia Ltd v Sharma  FCAFC 42, holding that an incoming group life insurer can exercise the remedies available under section 29 of Insurance Contracts Act 1984 (Cth) in respect of misrepresentations made by a life insured to a prior group life insurer. In essence, the fraudulent misrepresentations made for the purposes of obtaining insurance cover amounted to ‘continuing representations’ which the acquiring life insurer could rely upon. Sensible stuff.
- Credit cards / gambling (ABA): the Federal Government has announced it will ban the use of credit cards for online gambling. The change will amend the Interactive Gambling Act 2001, making it illegal for an online gambling company to accept a credit card online.
- IDR (ASIC): since 5 October 2021, financial firms have been required to record all complaints received and have an effective system for recording information about complaints (RG 271). Importantly, they need to report this data to ASIC. Recently, the first group of 97 large financial firms, including banks and some super funds, reported their IDR data. ASIC has further staged the implementation for the 8,600 reporting firms, which will result in all financial firms reporting their customer complaints data to ASIC. Expect ASIC to collate this data, report back to the market on its findings and target segments of the market where it senses underreporting as it is doing now with the enhanced breach reporting regime…
- Crypto ATMs (FCA): the UK FCA has been hunting down illegally operated crypto ATMs. Crypto ATMs allow people to buy or convert money into cryptoassets. There are apparently no crypto ATM operators registered with the FCA, which they must be to operate legally. In Australia, we don’t have the same type of regulation — though there is licensing requirements from AUSTRAC. We do have plenty of Bitcoin ATMs though, which are alleged in the UK to be utilised for money laundering purposes. One no doubt AUSTRAC will take note of soon…
Thought for the future: both houses sitting 9–11 May, and FAR has passed the house. It is budget week, but the likelihood is that it will pass the Senate, ushering in one of the biggest changes to our financial services regulatory regime in a generation.