Financial services monthly wrap up – March 2019

New corporate penalty regime commences

As noted in our last wrap-up, the Treasury Law Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 was passed by both houses. The Legislation was assented to and came into effect on 12 March 2019. The legislation:

• significantly increases penalties and prison terms for corporate and financial misconduct, for both companies and individuals;
• permits ASIC to issue infringement notices;
• introduces new criminal offences; and
• introduces a new definition of dishonesty, adopting a single limbed objective test.

Treasury releases draft regulations on conflicted remuneration

On 22 February 2019, Treasury released exposure draft legislation to ban grandfathering of conflicted remuneration paid to financial advisers, which if passed in the current format would be effective from 1 January 2021. The draft legislation is in response to recommendation 2.4 of the Royal Commission.

On 28 March 2019, Treasury released the corresponding draft regulations in relation to the cessation of grandfathering of conflicted remuneration. In particular, the regulations provide for a rebate of conflicted remuneration paid on or after 1 January 2021, such that:

• if an AFS licensee received a commission for selling a financial product to a retail client, the AFS licensee must provide a cash rebate to the affected retail client on a dollar-for-dollar basis; or
• where the conflicted remuneration can only be attributed to a client group, the AFS licensee must divide that conflicted remuneration between the affected retail clients in a just and equitable way and provide a cash rebate or other monetary benefit (e.g. a reduction in fees).

More information can be found here.

ASIC Industry Funding: Summary of 2018-2019 indicative levies

On 29 March 2019, ASIC published its estimated industry sector levies by subsector for 2018-19 in this summary, and details on its anticipated regulatory costs and allocation in its draft Cost Recovery Implementation Statement (CRIS), which is available here.

The CRIS also sets out the changes made to the funding levy framework since May 2018 (when the last CRIS was published), including clarifications to avoid double counting of assets by entities that act as both a responsible entity and a wholesale trustee.

APRA announces policy priorities

On 28 March 2019, APRA announced its policy priorities for the next 12 to 18 months. APRA stated that it will be revising its prudential standards across financial industry sectors, including changes to reflect the findings of the Royal Commission and the Productivity Commission. The changes will likely include the extension of the Banking Executive Accountability Regime to the insurance and superannuation industries and updates to data reporting requirements.

The policy priorities is available here.

ASIC research report reveals poor understanding of financial advice

On 28 March 2019, ASIC released a new research report (Report 614 Financial Advice: Mind the gap) on consumer awareness of financial advice, revealing substantial gaps in consumer understanding. One key concern highlighted by the report was that the concepts of ‘general’ and ‘personal’ advice are not clearly distinguishable for consumers and that the general advice warning is not necessarily effective.

ASIC stated that it will conduct additional research in 2019 to identify a more appropriate label for general advice and consumer-test the effectiveness of different versions of the general advice warning. The report can be found here.

APRA consults on updated guidance for managing information security risks

On 25 March 2019, APRA released its proposed updated guidance on how banks, insurers and superannuation funds should maintain information security capabilities (CPG 234). The corresponding new Prudential Standard CPS 234 was released in November 2018. CPG 234 is aimed at assisting regulated entities to comply with CPS 234 and covers the roles and responsibilities, policy frameworks and notification procedures in the event of material information security incidents. Both CPS 234 and CPG 234 will come into effect on 1 July 2019. Comments on the draft CPG 234 may be submitted to APRA until 17 May 2019.

More information is available here.

Regulators and courts receive bolstered funding for refocused enforcement priorities

On 23 March 2019, Treasury announced additional funding of $400 million and $150 million to APRA and ASIC respectively, representing an increase of 25% and 30% on the regulators’ 2017-18 budget allocation. The additional funding is intended to assist the regulators to strengthen their approach to enforcement and obligations to deal with misconduct in Australia’s financial sector. More details can be found here.

The Federal Courts have also been allocated $35 million in the 2019-20 budget. The funding is in addition to the $41.6 million provided to the Commonwealth Director of Public Prosecutions to prosecute briefs from ASIC. The influx of funds underpins a government commitment to expand the Federal Court’s jurisdiction to include financial sector criminal misconduct, and ease the burden of existing cases in state courts. The media release is available here.

Treasury releases a consultation paper on making financial services industry codes of conduct enforceable

On 18 March 2019, Treasury released a consultation paper on making provisions of existing financial services industry codes of conduct enforceable. This proposed amendment is in response to recommendation 1.15 of the Royal Commission’s Final Report. There are currently 12 codes in the financial services industry under the Corporations Act 2001, covering a range of subjects such as banking, wealth management and general insurance. Proposed action includes identifying code provisions that should be made enforceable under the law. Consultation will end on 12 April 2019.

The paper is available here.

ASIC releases report on corporate finance regulation

On 15 March 2019, ASIC published its 10th report on regulation of corporate finance, which covered the period July to December 2018. The report explains ASIC’s approach on fundraising transactions, mergers and acquisitions and corporate governance issues. ASIC has intervened in schemes and bids over concerns of fairness and equality, and adequacy of corporate governance controls. The report can be found here.

Treasury releases consultation paper on removing the exemption of insurance claims from ‘financial services’

On 1 March 2019, Treasury released a consultation paper on removing the exemption of handling or settlement of insurance claims from the definition of ‘financial services’ under the Corporations Act. This is in direct response to recommendation 4.8 of the Royal Commission’s Final Report. The reason for removing this exclusion in relation to general and life insurance is based on case studies during the Royal Commission which suggested that the exclusion resulted in potential for consumer detriment arising from inappropriate claims handling practices. If passed, the updated legislation would result in insurance handling claims being brought under the same purview as financial services providers and expanding the potential for regulatory intervention by ASIC. The paper is available here.

ASIC releases report on licensing and professional registrations

On 28 February 2019, ASIC released its latest report on its assessment of licensing and professional registration applications, showing that less than half (48%) of the 2,879 applications considered from the period of June 2017 to June 2018 were approved. The remaining applications were rejected, withdrawn or refused, or are still being assessed.

A copy of Report 611 Overview of all licensing and professional registration applications: July 2017 to June 2018 (REP 611) is available here.