May 2019 saw ASIC host its Annual Forum which was themed ‘Other People’s Money’. ASIC is also consulting on internal dispute resolution frameworks and how Corporations Act requirements do and should apply to the regulatory technology (regtech) industry.
During the month, APRA encouraged superannuation trustees to prepare for the implementation of the Protecting Your Superannuation packages of reforms and encouraged financial institutions to conduct self-assessments, to the extent that this has not already been achieved.
More information on these developments, as well as other industry news, is set out below.
ASIC releases market integrity report for 1 July to 31 December 2018
On 31 May 2019 ASIC released a report on market integrity for the period 1 July to 31 December 2018 (REP 619). REP 619 focussed on high frequency trading, allocation practices in equity raising transactions, changes to derivative reporting, behavioural change in the industry and ASIC’s enforcement outcomes in this regard.
ASIC stated that its focuses for the remainder of 2019 will be conduct governance, technology risk and resilience and effective capital markets.
More information and a copy of the report can be found here.
ASIC releases guidance on ICOs and crypto-assets
On 30 May 2019 ASIC released an updated Information Sheet 225 Initial Coin Offerings and crypto-assets (INFO 225). INFO 225 is aimed at providing guidance to businesses involved with ICOs and crypto-assets on how the Corporations Act may apply to their operations. At a minimum, businesses are reminded of the prohibition on misleading and deceptive conduct.
More information can be found here.
ASIC invites public consultation in relation to complaints handling standards of financial institutions
On 15 May 2019 ASIC initiated public consultation on an updated ASIC RG 165 Licensing: Internal and external dispute resolution (RG 165). The proposed updates to RG 165 are aimed at improving how financial institutions handle consumer and small business complaints. The proposed new standards are in response to consumer research conducted in 2018.
The proposed updates to RG 165 and the requirements for internal dispute resolution (IDR) frameworks include:
- reducing maximum timeframes for IDR responses;
- reviewing what constitutes a ‘complaint’, including when it is received through social media;
- setting clear standards for the content of reasons for decisions;
- strengthening the requirement for firms to take a systemic focus to complaints handling; and
- introducing a new framework for reporting recurrent complaints data to ASIC.
ASIC’s public consultation process is open until 9 August 2019. The updated RG 165 is expected to be released by the end of 2019. Further information can be found here.
ASIC Annual Forum 2019
On 16 May 2019, ASIC held its Annual Forum in Sydney. Chair of ASIC, James Shipton opened the forum and introduced the theme of ‘Other People’s Money’ and the societal role of finance. The other themes of the forum included the fairness imperative and ASIC’s strategic change program.
The strategic change program will involve a new enforcement strategy and supervisory approaches. Some of the measures will include:
- Why Not Litigate?: ASIC has adopted a ‘Why Not Litigate’ enforcement stance to deter future misconduct and address community expectations that punishment of misconduct be published and publicly denounced through the courts. ASIC’s adoption of this strategy will mean that once it is satisfied that breaches of the law are more likely than not and the facts of the case show that pursuing the matter would be in the public interest then ASIC will actively ask itself: why not litigate?
- New supervisory approach: In October 2018, ASIC adopted its Close and Continuous Monitoring Program (CCM), which is providing feedback to CEOs and other business leaders in relation to governance processes and practices. The new supervisory approach is more generally aimed at detecting cultural, organisational management failings that lead to conduct problems, breaches of the law and unfair outcomes.
A copy of the speech can be found here and a copy of the closing speech can be found here.
ASIC and APRA urge financial institutions to plan for LIBOR transition
On 9 May 2019 ASIC, with the support of APRA and the Reserve Bank of Australia, wrote to the CEOs of major financial institutions in Australia regarding preparations for the end of the London Interbank Offered Rate (LIBOR). LIBOR serves as a globally-recognised benchmark interest rate that indicates borrowing costs between major banks.
The Financial Conduct Authority (FCA) in the United Kingdom has announced that it will not act to sustain LIBOR beyond 2021. Accordingly, ASIC has encouraged financial institutions to investigate alternative benchmarks and to consider the impact of the LIBOR transition on their business. A copy of ASIC’s letter, as well as further information, can be found here.
APRA releases letter on the implementation of Protecting Your Super legislative amendments
On 8 May 2019 APRA published a letter to all registrable superannuation entity licensees on the implementation of the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, together with a series of frequently asked questions in relation to the updated legislation. In particular, APRA acknowledges that some of these reforms will require RSE licensees to implement a number of changes to their systems and practices prior to 1 July 2019. Some of the measures introduced as part of the reforms include the imposition of a 3% cap on member account balances below $6,000, the prohibition of exit fees, limiting the circumstances on when insurance can be offered through superannuation accounts, especially where accounts are inactive or low balance and the requirement for trustees to transfer inactive low-balance accounts to the ATO for the purposes of reunifying these accounts with active accounts of the relevant member.
APRA also encouraged trustees to take into account ASIC's letter dated 2 April 2019 and the Australian Taxation Office’s guidance on the package of reforms. APRA’s letter to the superannuation industry and associated material can be found here.
APRA releases report on industry self-assessments into governance, culture and accountability
On 22 May 2019 APRA released a report in relation to its analysis of the self-assessments undertaken by 36 of Australia’s largest banks, insurers and superannuation licensees. The self-assessments were carried out in response to a request from APRA to assess whether particular weaknesses were apparent in each business.
The findings of the self-assessments included that:
- non-financial risk management requires improvement;
- accountabilities are not always clear or effectively enforced;
- some acknowledged weaknesses are well-known and long-standing; and
- risk culture is not well-understood.
Following the release of the report, APRA has stated that it is considering applying additional capital requirements and supervisory responses. APRA encourages any financial institutions that have not yet conducted a self-assessment to do so. Further information about APRA’s report as well as a copy of the publication can be found here.
ASIC announces problem-solving regtech events
In conjunction with key industry bodies and stakeholders, ASIC has launched three programs relating to regtech in order to promote the use of regtech by financial services firms. The stated purpose of these events is for ASIC to explore with regtech industry participants how its financial services and credit licensing requirements apply to regtech, particularly in relation to advertising and the provision of financial advice.
ASIC stated that it is encouraging anyone with regtech solutions to participate in the events and showcase these technologies to representatives from finance, government, technology, the media and other stakeholders. The first of these events will be held on 2 August 2019 and two more events will follow in the later part of 2019. More information can be found here.