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Financial services monthly wrap up April 2019

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Publication April 2019

The month of April 2019 has seen an increase in the powers and responsibilities of both ASIC and APRA, with the passing of the anticipated Design and Distribution Obligations and Product Intervention Powers legislation and the Improving Accountability and Member Outcomes in Superannuation legislation.

Furthermore, ASIC has reissued its guidance on the relief currently available to foreign financial service providers and published its findings on the crowd-sourced funding and marketplace lending sectors.

More information on these developments, as well as other industry news, is set out below.


New Design and Distribution Obligations and Product Intervention Powers passed

The new Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (Act) received Royal Assent on 5 April 2019. As a result, the Product Intervention Powers came into effect on 6 April 2019. The Design and Distribution Obligations have yet to come into force, and shall commence after a two-year transition period.

The Act amends the Corporations Act 2001 (Cth) and National Consumer Credit Protection Act 2009 (Cth) by imposing design and distribution obligations and providing ASIC with certain product intervention powers to strengthen consumer protection. In particular, this legislation:

  • imposes a design obligation, whereby a target market determination must be made with respect to certain financial products to ensure the product is appropriate for its intended market;
  • imposes distribution obligations to ensure that an offeror or distributor cannot deal or provide financial product advice with respect to a product unless a target market determination has been made; and
  • has enhanced and increased ASIC’s intervention authority by giving ASIC proactive powers to issue a ‘product intervention order’ if ASIC is satisfied that there may be significant detriment for the retail client.

A copy of the legislation as passed is available here.


ASIC re-issues Information Sheet 157 ‘Foreign financial services providers – practical guidance’

On 3 April 2019, ASIC re-issued Information Sheet 157 ‘Foreign financial service providers – practical guidance’, which sets out the relief currently in place for certain foreign financial service providers to provide financial services to wholesale clients in Australia.

In particular, the information sheet clarifies the applicable fees for notifying ASIC that this relief is being relied upon and additional details on the relevant documents that must be provided to ASIC.

We note that this relief is still due to expire in September 2019.

ASIC’s media release and updated Information Sheet 157 can be found here.


APRA issues information paper on superannuation prudential framework

On 30 April 2019, APRA released an information paper in relation to its review of the superannuation prudential framework. APRA has examined the 2013 prudential framework to assess whether it is meeting its objective, resulted in any unintended consequences and continues to remain fit for purpose going forward.

APRA found that the prudential framework has resulted in improved practices across the industry and that the original objectives were largely being met, however, APRA also identified specific areas where enhancements to the frameworks will be considered, including governance, conflicts of interest and risk management.

The Information Paper ‘Review of APRA’s 2013 superannuation prudential framework’ can be accessed here.


APRA’s new Enforcement Approach

On 16 April 2019, APRA released details of its new enforcement approach, including how it intends to use its enforcement powers going forward. The approach is aimed at preventing and addressing serious prudential risks and to hold entities and individuals to account.

The stated principles that will guide APRA’s enforcement decisions going forward will be risk-based, forward-looking, outcomes-based and deterrence-focussed.

APRA’s Enforcement Approach can be accessed here.


ASIC's survey of marketplace lending providers

On 12 April 2019, ASIC released Report 617 Survey of marketplace lending providers after conducting a survey of 13 marketplace lending providers in the 2017-18 financial year. The Report found that marketplace lending (also known as peer-to-peer lending) has dramatically increased over the last year, with borrowings of $433 million during the year (which is up from $300 million for the FY 2016-17) and $518 million in outstanding loans (up from $327 million for the FY 2016-17).

A copy of the media release, Report 617 and infographic is available here.


ASIC’s survey of Crowed-Sourced Funding Intermediaries

On 12 April 2019, ASIC published Report 616 that sets out its findings of a review of eight crowed-sourced funding (CSF) intermediaries from 29 September 2017 to 30 June 2018.

The Report sets out the key information and findings from the survey, with approximately $7.04 million raised in successful offers, 77.5% of which was from retail investors. ASIC stated that it will seek to encourage further innovation in this sector without compromising the protection of investors.

A copy of Report 616 and applicable infographic is available here.


ASIC gives warning to AFS Licensees that offer OTC derivatives

On 11 April 2019, ASIC issued a warning that Australian financial services (AFS) licensees that offer OTC derivatives to retail clients in some overseas jurisdictions may be providing unlicensed or unauthorised services in those particular jurisdictions. ASIC noted that regulators based in North America, China, Europe and Japan have restricted or prohibited the provision of certain OTC derivatives to retail clients.

ASIC stated it will consider whether breaching overseas law is consistent with obligations under Australian law to provide services ‘efficiently, honestly and fairly’ and whether AFS licensees may be making misleading or deceptive statements about the scope or application or effect of an AFS licence in providing such services.

More information is available here.


New Improving Accountability and Member Outcomes in Superannuation Legislation passed

The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019 (Act) was registered on 10 April 2019. Among other items, the Act includes:

  • additional directions powers for APRA;
  • additional civil and criminal consequences for breaching certain provisions of the Superannuation Industry (Supervision) Act 1993;
  • changes to the portfolio holdings disclosure requirements;
  • the requirement to hold annual members’ meetings for superannuation funds;
  • additional reporting standards;
  • prohibition on a trustee or its associates using goods or services to influence employers (as recommended in the Royal Commission’s final report); and
  • the introduction an annual outcomes assessment.

The new Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019 is available here.

In response to the passage of this legislation, APRA commenced a four-week consultation period on an updated draft prudential standard that would require all registrable superannuation entities (RSE) licensees to annually assess the outcomes they are providing for their members. APRA Prudential Standard SPS 515 Strategic Planning and Member Outcomes was released in December 2018. However, APRA is proposing revisions to the draft standard to clarify how the new legislated outcomes assessment interacts with APRA requirements.

More information on the prudential standard can be found here.


Joint letter on superannuation fees published by ASIC and APRA

APRA and ASIC published a joint letter on 10 April 2019 to all RSE licensees to reinforce the importance of ensuring fees deducted from members’ superannuation account are done so in accordance with their best interests and with appropriate oversight.

The regulators stated that they expect all trustees to be reviewing their governance arrangements in relation to these fees and that to the extent that areas for improvement are identified, these should be addressed in a timely manner. The regulators expect that these reviews will be substantially completed by 30 June 2019.

The joint letter issued by APRA and ASIC is available here.


ASIC’s enforcement update from July to December 2018

On 9 April 2019, ASIC released its biannual report reviewing its enforcement objectives, actions and outcomes for the period of 1 July 2018 to 31 December 2018 (Report 615). In the report ASIC stated that its message to corporate Australia going forward is that ASIC is focused on enforcement. Further, ASIC sets out its particular enforcement focuses in relation to each of corporate governance, financial services, market integrity and small business. Unsurprisingly, ASIC’s stated focuses include those identified in the recent Royal Commission including misconduct by AFS licensees, related party transactions and poor corporate governance.

The summary of enforcement outcomes for the second half of 2018 includes 9 individuals charged in criminal proceedings, $12.7 million in civil penalties imposed by the courts, 72 people removed or restricted from providing financial services or credit, 28 individuals disqualified or removed from directing companies, 9 enforceable undertakings entered into and 57 investigations completed out of 75 commenced.

A copy of the media release and Report 615 is available here.


ASIC extends temporary disclosure-related relief for product dashboards

On 8 April 2019, ASIC amended ASIC Class Orders [CO 14/443] and [CO 13/1534] to further delay the commencement of certain product dashboard requirements from 1 July 2019 to 1 July 2023 for choice superannuation products. The deferral also applies to the requirement to include product dashboard information in periodic statements.

A copy of ASIC’s media release and the amending instrument is available here.


ASIC and UK Financial Conduct Authority’s post-Brexit co-operation

On 8 April 2019, ASIC and the UK’s Financial Conduct Authority (FCA) announced that two Memoranda of Understanding (MoUs) had been agreed to ensure continuity with respect to repositories and alternative investments funds once the UK leaves the European Union.

The MoUs ensure that ASIC may continue to have access to data on derivatives contracts held in UK trade repositories and ensure that ASIC and FCA can continue to work together to ensure that alternative investment fund managers and alternative investment funds continue to operate on a cross-border basis and are properly supervised in the UK and Australia.

For more information, the media releases and copies of the MoUs are available here.



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