The month of February 2021 has seen continued momentum for a raft of changes affecting financial services providers from various industries. APRA has released its new policies and priorities for 2021, which have a particular focus on the impacts of COVID-19 and seek to strengthen the financial services sector in dealing with future crises. The ‘Your Future, Your Super’ Bill has been introduced to Parliament which proposes significant superannuation regulatory reform. A key High Court decision has clarified the scope of personal financial product advice as distinct from general advice, and the Insurance Council of Australia has brought a second test case for business interruption insurance before the Federal Court.
APRA releases its policy and supervision priorities for 2021
On 1 February 2021, APRA released its policy and supervision priorities for 2021. Presented within an Information Paper, APRA has emphasised that it will continue to support the recovery from the impacts of COVID-19 over the next 12 to 18 months and seek to strengthen the financial system’s robustness against future potential crises. APRA’s key policy priorities include:
- finalising a revised prudential standard on remuneration;
- strengthening crisis preparedness, including the development of a new prudential standard on resolution and recovery planning;
- updating prudential standards on operational risk, governance and risk management, and consulting with industry on guidance for climate change financial risk;
- completing the ongoing review of the capital framework for authorised deposit-taking institutions to fully implement ‘unquestionably strong’ capital ratios and the Basel III reforms;
- supporting implementation of the government’s ‘Your Future, Your Super’ reforms to improve member outcomes; and
- continuing work on strengthening the capital framework for private health insurers.
In relation to supervision activities, APRA’s priorities include:
- maintaining financial system resilience through increased action on crisis readiness;
- increased scrutiny of entities’ cyber security capabilities;
- embedding the new remuneration standard, conducting a risk culture survey, undertaking a range of governance, risk culture, remuneration and accountability (GCRA) related supervisory reviews, and working to close risk governance issues currently requiring capital overlays; and
- addressing areas of MySuper underperformance, including by taking enforcement action where appropriate.
A copy of APRA’s policy and supervision priorities for 2021 can be found here.
Report on Australia as a Finance and Tech Centre
On 2 February, the Australian Finance & Technology Centre Advisory Group released a report into Australia as a financial and technology centre commissioned by Senator Bragg in August 2020. The report argues that Australia’s technology and financial sectors are sophisticated but too heavily focused domestically. Some of the recommendations of the report include:
- completing the corporate collective investment vehicle (CCIV) regime, with particular reference to the best features of the Singapore Variable Capital Company (VCC) structure;
- amending the investment manager regime rules to deal with issues in relation to (i) residence of foreign funds (ii) treatment of debt securities and (iii) treatment of fund manager interests in funds;
- have no withholding tax apply to funds issued under the Asia Region Funds Passport program; and
- adopt “Bias to Yes" and “Bias to Competition” as over-riding principles for ASIC, APRA, etc. when regulating FinTech, InsurTech, RegTech and other Tech.
The full report and recommendations can be found here.
High Court clarifies the scope of ‘personal advice’
On 3 February 2021, the High Court of Australia handed down its widely anticipated judgment on Westpac’s appeal against ASIC concerning the interpretation of personal financial product advice (Westpac Securities Administration Ltd v Australian Securities and Investments Commission  HCA 3).
The Court unanimously dismissed the appeal, clarifying the difference between general advice and the broad definition of ‘personal advice’ under section 766B(3)(b) of the Corporations Act 2001 (Cth), echoing consumer protection objectives. Verbal general advice disclaimers given by Westpac were deemed inadequate in the circumstances, since they created an impression that, as an advisor, Westpac had considered the client’s needs, objectives and financial situation.
In addition, given that Westpac’s ‘free’ rollover service did not indicate that ‘general’ or non-tailored advice was being provided, the Court held that there existed a presumption that the advisor has considered the client’s circumstances, particularly where it is the advisor that initiates contact. In finding that Westpac gave personal advice, the decision further highlights that, despite its broad definition, personal advice is not synonymous with comprehensive advice.
‘Your Future, Your Super’ Bill introduced
On 17 February 2021, The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 (the Bill) was introduced into the House of Representatives on 17 February, and referred to the Senate Economics Committee (the Committee).
Some of the key reforms proposed in the Bill include:
- requiring APRA to conduct an annual performance test for ‘underperformance’ of MySuper products and other products (to be specified in regulations);
- requiring the trustees of registrable superannuation entities and self-managed superannuation funds, as well as the directors of the trustee companies of a registrable superannuation entity to perform their duties and exercise their powers in the ‘best financial interests of the beneficiaries’;
- reversing the evidential burden of proof for the best financial interests duty so that the onus is on the trustee of a registrable superannuation entity; and
- requiring employers to make contributions for new employees into a ‘stapled’ superannuation fund, where possible and with a view to ensuring unnecessary fees and insurance premiums are not paid on unintended multiple superannuation accounts.
The Committee’s report is due by 22 April 2021. The Bill’s explanatory memorandum can be accessed here.
ASIC releases immunity policy for market misconduct offences
On 24 February 2021, ASIC released its immunity policy for certain contraventions of provisions of the Corporations Act. Under this policy, an individual who has engaged with others to manipulate the market, commit insider trading or engage in dishonest conduct when operating a financial services business can, in certain circumstances, seek immunity from both civil penalty and criminal proceedings. The policy is only available to individuals, and not corporations.
Under the policy, immunity will only be available to the first individual who satisfies the immunity criteria and reports the misconduct to ASIC prior to the commencement of an investigation into the conduct. The purpose of the immunity policy is to promote cooperation with ASIC and to enhance ASIC’s ability to identify and take enforcement action against complex markets and financial services contraventions. The policy will be reviewed every two years.
A copy of ASIC’ immunity policy can be found here.
Financial Sector Reform (Hayne Royal Commission Response No.2) Bill 2020 passed in the Senate
On 25 February 2021, Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 was passed in the Senate. This package implements a further four recommendations of the Financial Services Royal Commission to improve consumer protections.
The Bill amends the Corporations Act to require financial services providers that receive fees (fee recipients) under an ongoing fee arrangement to:
- provide clients with a single document each year which outlines the fees that will be charged and the services which the client will be entitled to in the following 12 months and which seeks annual renewal from clients for all ongoing fee arrangements; and
- obtain written consent before fees under an ongoing fee arrangement can be deducted from a client’s account.
Schedule 2 to the Bill amends the Corporations Act to require a providing entity (a financial services licensee or authorised representative) to give a written disclosure of lack of independence where they are authorised to provide personal advice to a retail client.
Finally, Schedule 3 to the Bill amends the Superannuation Industry (Supervision) Act increase the visibility of advice fees for all superannuation products and prohibit the charging of ongoing advice fees from MySuper products.
Further business interruption test cases
A second business interruption test case has been launched by the Insurance Council of Australia in the Federal Court of Australia. Compared to the first test case, which only considered the interpretation of a specific exclusion referring to the repealed Quarantine Act 1908 (Cth), the second test case considers a wider suite of substantial issues. The claimants include a dry cleaner, travel agency, stage clothing and costume store, gym, dental practice, property landlord, beauty salon and bar and restaurant businesses. The claims are also geographically spread out with businesses located in Townsville, Brisbane, Sydney, Wollongong, Melbourne and Adelaide.
The issues to be considered include:
- whether disease extensions to policies apply;
- applicability of prevention of access clauses;
- exclusions for listed human diseases; and
- causation issues.
ASIC consults on deferred sales model regulatory guidance
ASIC has released a draft regulatory guide on implementing the deferred sales model for add-on insurance products together with Consultation Paper 339. The legislation which commences on 5 October 2021 introduces a deferral period of four days during which an add-on insurance product cannot be sold. More information on the deferred sales model and other upcoming reforms can be found on our Insurance Regulatory Hub.
Consultation is open until 23 April 2021. The draft regulatory guide includes information on ASIC’s proposed approach for applying an exemption from the deferred sales model. The consultation also invites feedback on ASIC’s proposal on the content, form and communication of information that must be given to customers to start the deferral period.