Financial services monthly wrap-up: November 2022

Delay to financial advisor registration

On 1 November 2022 the Assistant Treasurer and Minister for Financial Services announced that the requirement for financial advisors to register with ASIC has been delayed six months until 1 July 2023. ASIC previously announced that the registration would be open from October 2022 through ASIC Connect, however due to the delay the portal will only be open in the second quarter of 2023 (see announcement here).

This new requirement is separate to existing requirements under the conditions of an Australian Financial Services Licence.

The media release can be accessed here.

ASIC announces enforcement priorities for 2023

ASIC has announced its enforcement priorities for 2023 which will focus on targeting greenwashing claims and disrupting investment scams as well as reducing predatory lending.

This is the first time ASIC has released particular areas of enforcement to focus on, but the regulator expects to now do this on an annual basis.

These goals are in addition to ASIC’s consistent priorities being to target:

• Insider trading, continuous disclosure failures, market manipulation and other misconduct which is damaging to market integrity;
• Misconduct impacting First Nations people;
• New or emerging conduct risks within the financial system;
• Widespread consumer harm caused by systemic compliance failures by large financial institutions resulting in widespread consumer harm;
• Misconduct targeting financially vulnerable consumers and with a high risk of consumer harm.

The media release can be accessed here.

Chair Keynote – ASIC Annual Forum

On 3 November 2022 ASIC Chair Joe Longo gave the keynote address at the ASIC Annual Forum in Sydney.

Mr Longo’s speech explored the challenges facing ASIC and other regulatory bodies in an increasingly complex and volatile world and spoke how ASIC plans to address this complexity through remaining clear about its purpose. He then spoke about regulatory complexity as it relates to climate change and sustainable finance as well as increased digitisation and explored how ASIC plans to address these issues.

The speech also emphasises that consumer protection is a core objective of ASIC in performing its functions and exercising its powers, especially in increasingly uncertain financial time where some financial institutions may be marketing inappropriate financial products to a wide range of consumers. Mr Longo concluded by outlining ASIC’s enforcement priorities for 2023 which essentially fall into the categories of protecting consumers, responding to emerging issues and maintaining market integrity.

The full speech can be read here.

ASIC Chair Joe Longo - Opening statement to the Senate Economics Legislation Committee Budget Estimates 2022-2023

On 9 November 2022ASIC Chair, Joe Longo appeared at the Senate Economics Legislation Committee.

He stated that ASIC “plays an important part in the system by overseeing an effective licensing regime, releasing guidance for industry participants, and assessing all the information and intelligence we gather about potential misconduct.”

Longo referred to ASIC’s work pertaining to Design and Distribution Obligations. He stated that ASIC have issued 11 stop orders under this new power and that ASIC have “10 targeted surveillance projects on foot, focused on sectors where we are seeing consumer harm from poor design and distribution practices.”

The ASIC Chair also highlighted that ASIC’s responsibilities are set to be further broadened “with the soon-to-be introduced Financial Accountability Regime (FAR) and our expanding involvement in crypto regulation.”

The opening statement to the Senate Economic Legislation Committee can be viewed here.

ASIC updates naming conventions for exchange traded products (ETP)

ASIC has updated Information Sheet 230 which deals with naming conventions of ETPS following industry consultation. The changes involve simplifying the names of ETPs to make them more easily understood by consumers.

The media release can be accessed here and Information Sheet 230 can be accessed here.

ASIC makes class order FSG relief for authorised representatives providing claims handling and settling services

On 28 November 2022, ASIC has issued class order relief, under ASIC Corporations (Financial Services Guides) Instrument 2022/910, which exempts authorised representatives from the requirement to provide a Financial Services Guide.

This relief is limited only to where authorised representatives deal in general insurance products or bundled consumer credit insurance products and provide claims handling and settling services. As a condition of the relief, licensees will also be required to take reasonable steps to ensure that their authorised representatives are:

• drawing the client’s attention to the availability of dispute resolution systems and
• giving the client written information about who they act for when providing the financial service and any remuneration they may receive.

The relief will become operative on 29 November 2022 and is due to expire in five years.

The media release can be accessed here.

ASIC surveillance reveals shortcoming of managed funds marketing oversight

On 30 November 2022, following its ongoing surveillance of managed funds, ASIC has raised concerns that managed fund operators were not exercising proper oversight over the marketing of their funds to investors.

ASIC has found deficiencies in the marketing of five managed funds (with approximately 705 million in assets under management as at October 2022). As a general theme, ASIC was concerned that the managed fund operators did not have proper compliance controls in place to ensure that they were approving advertising materials at first instance, or were subsequently exercising effective oversight over what advertising materials were in use.

The lack of oversight ultimately resulted in marketing which was inconsistent with the following long-standing regulatory principles on disclosure practices:

• Projections of future fund performance must be reasonable and include prominent qualification or warnings;
• When promoting fund benefits, it must be commensurate with risk disclosure;
• There must be a reasonable basis to compare funds to other financial products; and
• Recommendations and testimonials must be attributed and have a reasonable basis.

The media release can be accessed here.

ASIC proposes to remake class order relief on takeovers, compulsory acquisitions and relevant interests

On 30 November 2022, ASIC has released its consultation paper, Consultation Paper 365, which includes its proposal to remake nine class order relief instruments relating to takeovers, compulsory acquisitions and relevant interests.

ASIC’s proposal comes in anticipation of the instruments sunsetting in 2023 and its finding that the class order relief has proven to be a necessary and useful part of the legislative framework. ASIC is proposing to make only minor changes to the instruments which are intended to address technical issues that ASIC has identified in the course of administering the instruments.

The class order instruments proposed to be remade include:

• Class Order [CO 12/1209] Relevant Interests;
• Class Order [CO 13/519] Changing the responsible entity;
• Class Order [CO 13/520] Relevant interests, voting power and exceptions to the general prohibition;
• Class Order [CO 13/521] Takeover bids;
• Class Order [CO 13/522] Compulsory acquisitions and buyouts;
• Class Order [CO 13/524] Bidder giving substantial holding notice;
• Class Order [CO 13/525] On-sale disclosure relief for scrip bids and schemes of arrangement;
• Class Order [CO 13/526] Warrants: Relevant interests and associations; and
• Class Order [CO 13/528] Changes to a bidder’s statement between lodgement and dispatch.

ASIC is seeking feedback on its proposal to remake the class order relief from stakeholders, with consultation submissions due on 23 January 2023.

The media release can be read here.

APRA releases expectations on capital calls for banks and insurers

On 1 November 2022, APRA released a letter to authorised deposit-taking institutions, general insurers and life insurers to reinforce the existing prudential requirements for additional Tier 1 capital or Tier 2 capital instruments.

The media release can be accessed here and the letter is available to read and download here.

APRA Deputy Chair speech - Insurance Council of Australia’s 2022 Annual Conference

Helen Rowell, Deputy Chair or APRA, delivered a speech to Insurance Council of Australia’s 2022 Annual Conference.

The speech touched on the role of the insurance sector in society, especially in the past few years with natural disasters like bushfires and floods and the uncertainty caused by the COVID 19 pandemic.

Ms Rowell then addressed three themes:

• The role of insurers in contributing to insurance affordability and availability especially in natural-disaster prone areas;
• The need for strengthened risk management practices across the end-to-end product management lifecycle; and
• The importance of innovation to ensure insurance models are fit-for-purpose given future challenges.

The speech can be read here.

APRA invites consultation on minor changes to reporting standards under the Superannuation Data Transformation project

APRA’s Superannuation Data Transformation project is an ongoing project aiming to increase industry transparency and thus improve industry practices and ameliorate member outcomes.

The current consultation is in relation to minor changes to reporting standards introduced under Phase 1 of the Superannuation Data Transformation which aim to clarify investment option reporting and expenses reporting, reduce the frequency of reporting for some requirements and increase the time for submission of data for some requirements.

The media release can be accessed here and the discussion paper in relation to the consultation can be viewed here.

APRA Chair John Lonsdale - Opening Statement to the Senate Economics Legislation Committee

On 9 November 2022, APRA chair, John Lonsdale appeared before the Senate Economics Legislation Committee. Superannuation was one of the focus areas of his opening statement to the committee.

Mr Lonsdale stated that “in superannuation, our focus continues to be on identifying and addressing fund underperformance, and ensuring trustees are always focusing on the interests of their members.”

The Chair told the committee that the advent of the MySuper performance test together with the existing APRA heatmaps had driven positive change including seeing more members in better performing products and consolidation which is driving costs down.

Lonsdale noted that next month APRA will publish its fourth superannuation heatmap and that over the next few weeks APRA will also be releasing multiple important consultations for the superannuation industry. Additionally, it was highlighted that APRA will be releasing a number of major publications over the next few months:

• an information paper on the climate vulnerability assessments (CVA) that APRA undertook on Australia’s largest five banks across 2021-2022;
• an information paper on APRA’s macroprudential policy;
• the final prudential standard on recovery and exit planning;
• a guide for directors of authorised deposit taking institutions as part of our Modernising the Prudential Architecture project;
• a letter to providers of purchase payment facilities on minimum capital requirements;
• a consultation on a number of life insurance prudential standards; and
• jointly with the Australian Securities and Investment Commission (ASIC), information on the APRA-ASIC joint administration of the new Financial Accountability Regime, after legislation has passed parliament.

The opening statement to the Senate Economic Legislation Committee can be viewed here.

APRA moves to strengthen transfer planning in superannuation

APRA has started consulting on a series of measures to enhance planning by superannuation trustees in the event they need to transfer members into or out of their fund.

In a discussion paper released on the 10 November 2022, APRA outlined proposals aimed at ensuring trustees prepare for, manage and execute successor fund transfers more smoothly and efficiently.

While APRA supports further industry consolidation, APRA Deputy Chair Margaret Cole said successor fund transfers often ran into problems that eroded the benefits to members.

“With industry consolidation likely to increase in coming years as poor performers and those with sustainability issues exit, and strong performers seek a competitive edge, it’s important all trustees are prepared to initiate a timely transfer of members where indicators point to this achieving better outcomes for members. By updating our framework in this way, we also aim to help trustees identify, and avoid or overcome, barriers to effective member transfers,” Ms Cole said.

APRA has proposed updating the prudential framework to introduce new requirements:

• for all trustees to be prepared for a future transfer of members, elevating what was previously guidance; and
• relating to the transfer of MySuper assets within 90 days in the event that APRA cancels a trustee’s authority to offer a MySuper product.

APRA will also look to strengthen and simplify the transfer planning guidance contained in Prudential Practice Guide SPG 227 Successor Fund Transfers and Wind-ups.

Consultation on the transfer planning proposals is open until 10 March 2023.

The media release can be viewed here. The relevant discussion paper can be accessed here.

APRA releases discussion paper on financial resources for risk events in superannuation

APRA has proposed changes to improve how superannuation trustees manage financial resources to protect fund members from poor operational risk event outcomes.

In a discussion paper released on 14 November 2022, APRA proposes to replace the existing Prudential Standard SPS 114 Operational Risk Financial Requirement with enhanced obligations for trustees. The enhancements include broadening the scope of permitted use of financial resources held to manage operational risks, reducing barriers to efficient use of these resources, and requiring trustees to adopt a more sophisticated risk-based approach to determining how much to hold.

The media release can be viewed here. The relevant discussion paper can be accessed here.

APRA consults on minimum capital requirements for PPF providers

APRA has released a consultation on its proposed amendments to the minimum capital requirements for purchased payment facilities (PPF) providers.

On 14 November 2022, APRA outlined its proposed modifications to Prudential Standard APS 610 Prudential Requirements for Providers of Purchased Payment Facilities to align the current minimum capital adequacy requirement for PPF providers with the broader capital framework for other APRA-regulated entities.

These proposed changes are an interim measure. APRA will provide an update on the planned wider review of APS 610 as part of its annual Policy Priorities update early in the new year.

The consultation on the proposed amendments to APS 610 will be open until 14 February 2023.

The media release can be reviewed here. Further information regarding APRA's consultation on proposed changes to minimum capital requirements for PPF providers can be accessed here.

APRA announces consultation on investment governance guidance for superannuation trustees

From 1 January 2023, the new Prudential Standard concerning investment governance for superannuation trustees (SPS 530) will come into effect.

APRA has now released SPG 530, the guide to SPS 530, for industry consultation. The guidance is intended to assist superannuation trustees in conforming to the requirements of SPS 530, specifically in relation to including for liquidity management, stress testing and valuations practices.

SPG 530 will also explain APRA’s expectations concerning how superannuation trustees consider environmental, social and governance risk factors.

The consultation period closes on 17 March 2023.

The media release can be viewed here and the draft SPG 530 can be accessed here.

APRA seeks consultation on four life insurance standards expiring in April 2023

The following prudential standards are currently due to expire on 1 April 2023:

• Prudential Standard LPS 100 Solvency Standard (LPS 100);
• Prudential Standard LPS 115 Capital Adequacy: Insurance Risk Charge (LPS 115);
• Prudential Standard LPS 360 Termination values Minimum Surrender Values and Paid up Values (LPS 360); and
• Prudential Standard LPS 370 Cost of Investment Performance Guarantees (LPS 370).

APRA proposes to extend these standards and seeks industry consultation to ensure the standards’ continued relevance.

Written submissions as part of the consultation are due by 15 December 2022.

The consultation letter and the four standards can be downloaded here.

Speech to the Financial Services Assurance Forum

On 24 November 2022, APRA’s General Manager of Governance, Culture, Remuneration and Accountability, Stuart Bingham, gave a speech to the Financial Services Assurance Forum.

In his speech Mr Bingham discussed the importance of a strong risk culture within regulated entities to identifying, understanding and acting on current and emerging risks.

Mr Bingham also highlighted upcoming issues for regulated entities including the introduction of the new Financial Accountability Regime, in addition to APRA’s other prudential requirements concerning operational resilience. He also spoke about the growing risk of cyber-related incidents as being an issue that the financial system needed to guard against.

The full speech can be read here.

APRA Deputy Chair Opens Forum on Superannuation Board Governance

On 28 November, the APRA Deputy Chair, Margaret Cole, opened the Australian Institute of Superannuation Trustee (AIST) Chair Forum. In her opening remarks, Cole focused on the corporate governance challenges that faces superannuation boards today. In summary, Cole recommends that superannuation entities looking to maintain a high performance board should:

• Cautiously consider the impact of long-tenure of directors, which may erode their capacity to exercise independent judgment. While APRA has recommended a limit of 12 years, Cole has indicated that shorter-tenure limits may promote fresh perspectives and a diverse range of talent;
• Pay attention to the composition of board and ensure that there is an adequate mix of skills and experience, which reflect the organisational aspects of the relevant superannuation entity; and
• Promote a culture of healthy scepticism: ideally it should be the directors’ role to stress-test the plans of management to ensure robust decision making. Ensuring that directors have the “psychological safety” to express contrarian views is critical to the performance of their duties.

Cole’s speech is a timely reminder that the regulatory landscape for corporate governance is evolving and comes hot on the heels of APRA publishing its new standard on investment governance (see above) and alongside ASIC’s ongoing efforts to revitalise corporate governance practices (which includes its review of responsible entities earlier this year).

The full speech can be read here.

PRA publishes results of Climate Vulnerability Assessment

On 30 November 2022, APRA published its aggregated results from its first Climate Vulnerability Assessment (“CVA”), which was conducted over the course of two years on five of the largest banks in Australia.

The CVA was undertaken by APRA in response to concerns that climate change may impact the lending portfolios of banks over the medium to long term, with the overarching aim to better diagnose and managed climate change risk in the banking sector.

The media release can be read here. The CVA information paper can be accessed here.

AUSTRAC Consultation on draft guidance on enhanced customer due diligence and employee due diligence and training

On 3 November 2022, AUSTRAC published draft guidance for consultation on enhanced customer due diligence and employee due diligence and training.

Drawing on the existing obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument (No.1) 2007 (Cth), the draft guidance confirms for reporting entities, AUSTRAC’s expectations and provides examples regarding enhanced customer due diligence and employee due diligence training.

The draft guidance is open for consultation from 3 November 2022 to midnight (AEDT) 15 December 2021. The Consultation page is accessible here.

AUSTRAC consultation on draft guidance: providing financial services to customers that financial institutions assess to be higher risk

On 9 November 2022, AUSTRAC published draft guidance for consultation on providing financial services to customers that financial institutions assess to be a higher risk.

Prompted in part by the rise of ‘debanking’ among reporting entities, the draft guidance is intended to convey the ‘dynamic’ money laundering and terrorism financing risks reporting entities may encounter and the ‘tailored’ approaches to risk assessment that should be considered.

The draft guidance is open for consultation from 9 November 2022 to midnight (AEDT) 21 December 2021. The Consultation page is accessible here.

APRA releases superannuation statistics for September 2022

APRA has released its Quarterly Superannuation Performance publication and the Quarterly MySuper Statistics report for the September 2022 quarter.

The statistics for the quarter up to 30 September 2022 can be accessed here and the publication can be downloaded here.

APRA releases quarterly private health insurance statistics for September 2022

Every quarter APRA publish industry aggregate statistical summaries of capital adequacy, financial position, key ratios and financial performance.

The statistics for the quarter up to 30 September 2022 can be accessed here.

APRA releases life insurance statistics for September 2022

Every quarter APRA publish industry aggregate statistical summaries of capital adequacy, financial position, key ratios and financial performance.

The statistics for the quarter up to 30 September 2022 can be accessed here.

APRA releases general insurance statistics for September 2022

Every quarter APRA publish industry aggregate statistical summaries of capital adequacy, financial position, key ratios and financial performance. This publication also includes detailed statistics at a class-of-business level, a breakdown of operating income and expenses, and more granular solvency information.

The statistics for the quarter up to 30 September 2022 can be accessed here.