Financial Services and Credit Monthly Update August 2024
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CONSUMER CREDIT
Extending small business responsible lending obligations exemption
Treasury has sought submissions on the proposed extension of the ‘small business’ exemption of the responsible lending obligations (RLOs) for a further 2 years, until 3 October 2026. The exemption was first introduced in April 2020. It provides that the RLOs do not apply to a regulated loan to a small business where one of the purposes of the loan (not the predominant purpose) is a genuine business purpose that is not minor or incidental. The consultation closed on 19 August 2024.
COMPETITION
Proposed authorisation for collaboration in cash in transit industry
On 1 August 2024, the Australian Competition and Consumer Commission (ACCC) issued a draft determination proposing a conditional authorisation for the Australian Banking Association, member banks and other industry participants to facilitate continuity planning in the cash in transit industry. In addition, the draft determination proposes to enable parties to implement business continuity measures in case of, or in anticipation of, a suspension, disruption or exit of Armaguard’s cash-in-transit services. The draft determination was open for submissions until 14 August 2024.
ACCC review of IMT services
The ACCC has released a report on transparency and competition in the international money transfer (IMT) services market. The key findings of the report include:
the market for IMTs has experienced significant growth;
fintech businesses have significantly increased their market share by offering cheaper prices and better services than banks;
major banks have lowered their prices to increase their competitiveness, but they still remain higher than many of their rivals;
overall IMT transaction costs have fallen; and
Australia’s IMT costs remain above G20 targets.
The ACCC reviewed the IMT market in 2019 and issued Best Practice Guidance for IMT businesses. The ACCC is now proposing updates to the Best Practice Guidance to include:
requiring IMT suppliers to show the estimated time for a transfer to reach the recipient;
requiring suppliers to enable their customers to track the status of their payments; and
asking suppliers to subtract fees from the amount consumers want to send, to assist consumers compare offers.
A one-page guide for consumers has also been released by the ACCC.
Consultation on new merger notifications thresholds
On 30 August 2024, the Federal Government released a consultation paper on proposed merger notification thresholds as part of the reforms to merger rules and processes. The closing date for submissions is 20 September 2024.
Under the proposals, there will be monetary value thresholds and market concentration thresholds for acquisitions, and an acquisition will have to be notified if it meets at least one of the monetary or market concentration thresholds and there is a material connection to Australia.
Under the monetary thresholds, a proposed merger will be notifiable if it meets either of the following two criteria:
combined Australian turnover of the merger parties is at least $200 million, and either the Australian turnover is at least $40 million for each of at least two merger parties or the global transaction value is at least $200 million; or
the acquirer group’s Australian turnover is at least $500 million, and either the Australian turnover is at least $10 million for each of at least two merger parties or the global transaction value is at least $50 million.
Under the market concentration thresholds, a merger must be notified if it reaches either of the following two thresholds:
a 25 per cent share of an affected market, where Australian turnover of at least two acquisition parties is at least $20 million; or
a 50 per cent share of an affected market with a lower turnover requirement of $10 million.
CONSUMER PROTECTION
ASIC takes down over 7,300 investment scam websites
On 19 August 2024, the Australian Securities and Investments Commission (ASIC) announced that it had taken down more than 7,300 phishing and investment scam websites over the one-year period since July 2023. The taken down websites consist of over 5,530 fake investment platform scams, 1,065 phishing scam hyperlinks and 615 cryptocurrency investment scams. ASIC noted that investment scams are the most prevalent type of scam affecting Australians, with $1.3 billion losses reported in 2023.
Report on anti-scam practices of banks outside big-four banks
On 20 August 2024, ASIC published a report into the anti-scam practices of 15 banks outside of the big-four banks. The report revealed the following key issues:
significant lack of consistency in the maturity of scam strategies and governance between the reviewed banks – only one third had organisation-wide scam strategies;
inconsistent and narrow approaches to liability determination; and
insufficient support for scam victims.
ESG
Climate reporting Bill passed
On 22 August 2024, the Senate passed the Bill that will impose mandatory climate reporting requirements for large companies. The climate reporting reform seeks to establish an Australian climate risk disclosure framework with standardised reporting requirements. These requirements will take effect from 1 January 2025 for Australia’s largest companies and financial institutions. (The Bill also includes provisions on critical infrastructure that will and provide regulators with new powers to manage financial market infrastructure risks in the event of a crisis.)
FINANCIAL MARKETS
Government response to review of continuous disclosure regime amendments
On 12 August 2024, the Federal Government published its response to the independent review of the 2021 amendments to Australia’s continuous disclosure regulatory framework. The review report proposed a number of recommendations. Two of these have been accepted by the Government: repeal of the 2021 amendments in relation to the enforcement action by ASIC, and retention of the amendments regarding private litigants.
FINANCIAL SERVICES
Foreign financial services providers relief
ASIC has extended the transitional relief for foreign financial services providers (FFSPs) from the requirement to hold an Australian financial services licence when providing financial services to Australian wholesale clients for a further period of 12 months to 31 March 2026. After this extended deadline, FFSPs will need to notify ASIC whether they intend to rely on the new licensing exemption regime, which is proposed to commence on 1 April 2025.
FINANCIAL SYSTEM
Review of small and medium-sized banks
The Treasurer has directed the Council of Financial Regulators (CFR), in consultation with the ACCC, to conduct a review of the small and medium-sized banking sectors. The review will examine:
the role and state of small and medium-sized banking sectors in providing competition;
regulatory and market trends affecting their competitiveness; and
current and potential future sources of and barriers to competition from these sectors.
The review will consider:
how mechanisms to mitigate deposit risks and contagion risks (such as the Financial Claims Scheme) may enable more proportionate ex-ante regulation for smaller banks and lower barriers to entry and expansion;
access and costs of funding by small and medium-sized banks, including the impact of current statutory limits on the use of covered bonds; and
the cumulative regulatory reporting obligations from across the CFR agencies for small and medium-sized banks.
The review will seek the CFR and ACCC’s views on how competition and dynamism in these sectors can be better supported, and what steps may be taken to improve regulation to ensure increased proportionality and an appropriate balance between competition, innovation and stability.
Senate inquiry into financial regulatory framework and home ownership
On 14 August 2024, the Senate referred an inquiry into Australia’s financial regulatory framework and home ownership to the Senate Economics References Committee. The Committee is due to report by 5 December 2024. The closing date for submissions is 26 September 2024.
The inquiry will consider whether the present financial regulatory framework adequately prioritises the goal of home ownership for Australians, with particular reference to:
prudential standards and Corporations Act provisions for lending;
the nature and type of debt and equity arrangements being used to underpin housing development;
the appropriate involvement (if any) of corporate and institutional funds in the provision of housing;
the effectiveness of mechanisms to monitor investment in the residential property market;
the tax treatment of residential property and impacts on demand and house prices;
the adequacy of metrics available to policymakers for monitoring the ratio of new housing supply relative to population growth;
examples of effective priority treatment for aspiring Australian homeowners that do not compromise financial stability; and
any related matters.
Reference checking protocol updated
ASIC has updated its reference checking and information sharing protocol for financial advisers and mortgage brokers. The updated protocol commenced on 20 August 2024, and introduces:
provisions enabling all licensees to request references about a prospective representative from the representative’s current and/or former mortgage aggregator; and
a question on the template consent and reference forms about any warnings or reprimands to financial advisers from ASIC and the Financial Services and Credit Panel.
Until 28 February 2025, licensees can use either the existing 2021 forms or the new consent and reference forms to request references. ASIC also updated its information sheet 257 on the protocol.
INSOLVENCY
Low take up of simplified liquidations
ASIC’s recent report shows that less than one in 10 liquidators have adopted the new simplified liquidation process to wind up companies with debts not more than $1 million. The simplified process was introduced as a streamlined alternative process for creditors’ voluntary liquidations (CVLs) in 2021. It is reported that out of 4,867 CVLs commenced after 1 January 2021 and finalised by 31 December 2023, 3,978 CVLs were eligible for the simplified liquidation process, but only 82 CVLs adopted the process.
PRIVACY AND DATA
CDR reform consultation
The Federal Government is seeking to reset the Consumer Data Right (CDR) following reports of substantially high regulatory compliance costs for entities and low customer uptake. As part of the efforts to improve the CDR framework, the Government has:
opened consultation on proposed changes to consent and operational rules, which are aimed at streamlining consents for consumers. Submissions can be made until 9 September 2024;
published a report of an independent review of CDR compliance costs;
written to the Chair of the Data Standards Body to secure alignment with the Government’s direction for the CDR; and
indicated an intention to expand CDR to the non-bank lending sector in early 2025, making it operational by mid-2026.
CDR action initiation legislation passed
The Treasury Laws Amendment (Consumer Data Right) Act 2024 (Cth) received assent on 26 August 2024. The Act amends the Competition and Consumer Act 2010 (Cth) to establish action initiation reforms for the CDR, to enable CDR consumers to direct accredited persons to instruct on actions on their behalf using the CDR framework, such as making a payment, opening and closing an account, switching providers and updating personal details.
PRUDENTIAL
APRA letter on common cyber control weaknesses
On 15 August 2024, the Australian Prudential Regulation Authority (APRA) issued a letter to all APRA-regulated entities to provide further insights and guidance in relation to common cyber weaknesses observed in terms of security in configuration management, privileged access management and security testing. Regulated entities are urged to conduct an internal review of their control environment against the listed weaknesses, to address any identified gaps, and to notify APRA of any gap that may materially impact the entity’s risk profile or financial soundness.
APRA finalises centralised glossary for prudential framework
APRA has finalised the new cross-industry Prudential Standard CPS 001 Defined terms (CPS 001) which provides a centralised glossary for all existing standards for authorised deposit-taking institutions and general, life and private health insurers. The final CPS 001 takes effect from 1 October 2024.
APRA Corporate Plan
APRA has published its latest Corporate Plan for the next four years. It includes APRA’s strategic priorities, annual policy and supervision priorities, and a new inclusion of data priorities. APRA’s top priorities in the Corporate Plan are:
further strengthening bank capital and liquidity standards to reflect lessons learned from last year’s global banking turmoil;
increasing minimum standards for operational resilience through the implementation of new Prudential Standard CPS 230 Operational Risk;
raising industry standards on cyber risk management;
developing APRA’s first system stress test to model and assess interconnections across the financial system;
lifting expectations of entities to consider the financial impacts of climate risk in decision-making;
partnering with stakeholders to reduce the protection gap for household insurance; and
working with ASIC to ensure superannuation trustees meet their requirements under the retirement income covenant.
APRA internal reorganisation
APRA has announced changes to its internal structure. It will move to having its five industry supervision groups being managed in two supervision divisions instead of the current three frontline supervision divisions (Banking, Superannuation and Insurance). From 2 September 2024, the two frontline supervision divisions will be a General Insurance and Banking division and a Life Insurance, Private Health Insurance and Superannuation division.
APRA will also bring together its existing financial and non-financial risk teams in a Cross-industry Risk division, alongside teams focused on systemic risk work. These moves are designed to create a centre of excellence for risk specialists, improve knowledge transfer and cross-skilling opportunities, and ensure that APRA takes a cross-industry and system-wide view of risks.
APRA’s three other divisions – Policy & Advice; Technology & Data, and Chief of Staff & Enterprise Services – will remain broadly unchanged.
APRA says that the frontline supervisory teams focused on each industry and engaging with regulated entities will also remain unchanged.
SUPERANNUATION
Report on regulatory framework for superannuation ‘choice’ sector
On 5 August 2024, the Financial Services Council published a report on the suitability of the regulatory framework for non-MySuper superannuation products. The report found that the regulatory framework will need to evolve to meet the growing complex financial advice needs which will reportedly increase by 70% over the next 25 years.
DISPUTES AND ENFORCEMENT
ASIC strategic priorities expansion
On 22 August 2024, ASIC released its corporate plan for the 2024-25 period. The plan expands ASIC’s strategic priorities to include, as a new pillar, Australia’s public and private markets and emerging financial products.
Record number of financial complaints
The Australian Financial Complaints Authority has reported another record year of complaints, with an increase of 9 per cent to more than 105,000 disputes recorded in 2023-24. The preliminary findings reveal scams as the main driver for the increase, together with a surge in complaints about comprehensive motor vehicle insurance. The key data includes:
banking and finance complaints rose by 11 per cent to 59,636;
general insurance complaints rose by 4 per cent to 29,096;
scam-related complaints rose by 81 per cent to 10,951 with an average of 912 per month (as compared to an average of 504 per month in the previous financial year);
personal transaction accounts were the most complained about product; and
alleged unauthorised transactions were the most complained about issue.
ASIC interventions on greenwashing
ASIC has published a report on its interventions in relation to greenwashing misconduct during the period between April 2023 and June 2024. The key interventions of ASIC include:
47 regulatory interventions to address greenwashing misconduct;
commencement of civil penalty proceedings in the Federal Court against LGSS Pty Limited (Active Super) and Vanguard Investments Australia;
issuance of eight infringement notices totalling over $123,000 in payments; and
the civil penalty proceedings against Mercer Superannuation (Australia) Limited with an $11.3 million penalty outcome (see note below).
Greenwashing penalty against Mercer
In ASIC’s first greenwashing court action, the Federal Court has ordered Mercer Superannuation (Australia) Limited (Mercer) to pay $11.3 million in penalties following its admission of having made misleading statements about the sustainability of some of its superannuation investment options. Mercer’s statements were found to be misleading as they marketed its ‘Sustainable Plus’ investment options as excluding investments involving fossil fuels, alcohol, and gambling, but the investments made under these options included companies operating in those excluded sectors.
ASX sued for alleged misleading statements
ASIC has initiated court action against ASX Limited (ASX) for allegedly making misleading statements in relation to its Clearing House Electronic Subregister System replacement project. The alleged misleading statements were contained in ASX announcements on 10 February 2022 to the effect that the replacement project remained “on-track for go-live” in April 2023 and was “progressing well”. ASIC asserts that these statements were misleading and deceptive on the basis that, at the time of the announcements, the replacement project was not on track, and ASX had no reasonable basis to imply that the project was progressing in accordance with its plan to meet future milestones.
Additional licence conditions imposed on United Super and BUSSQ
APRA has imposed additional licence conditions on United Super Pty Ltd (United Super), trustee for the Construction and Building Unions Superannuation Fund, and BUSS (Queensland) Pty Ltd (BUSSQ), trustee for the Building Unions Superannuation Scheme and the BUSS (Queensland) Pooled Superannuation Trust. APRA’s actions are aimed at addressing concerns regarding United Super’s and BUSSQ’s fitness and propriety processes and fund expenditure management, due to their links with the Construction, Forestry and Maritime Employees Union (CFMEU) and Construction, Forestry, Mining and Energy Industrial Union of Employees, Queensland respectively. The CFMEU has been subject to public allegations regarding serious misconduct, which has raised APRA’s concerns. The additional licence conditions require the trustees to engage an independent expert to conduct a review in relation to their compliance with the requirements under Prudential Standard SPS 520 Fit and Proper and their duty to act in the best financial interests of the funds’ beneficiaries in making expenditure decisions. BUSSQ is seeking a judicial review of the APRA decision.
APRA increases ANZ’s capital add-on
APRA has increased the $500 million capital add-on which it had imposed on Australia and New Zealand Banking Group (ANZ) in 2019 to $750 million in response to further concerns regarding ANZ’s deficiencies in its risk governance. Despite the capital add-on requirement being in place for a number of years, APRA has not recognised any significant improvement in ANZ’s non-financial risk management. APRA’s decision to increase the capital add-on followed a number of emerging issues including ANZ’s admission that it misreported bond trading data to the Australian Office of Financial Management in 2022-23. In addition to the add-on increase, APRA also requires ANZ to appoint an independent party to review the root causes of its recent issues and risk governance, and to develop a remediation plan to address findings from the independent review.
Kraken margin product is subject to DDO
On 23 August 2024 the Federal Court decided that Bit Trade Pty Ltd, the operator of the Kraken crypto exchange in Australia, had failed to comply with design and distribution obligations (DDO) when offering a margin trading product called Margin Extension, because it did not have a target market determination for the product as required by DDO. The product provided for margin extensions to be made and repaid in either digital assets such as Bitcoin or national currencies. ASIC alleged that the obligation to repay a digital asset or national currency was a deferred debt, so that the product was a credit facility, a type of product that is subject to DDO. Justice Nicholas held that the obligation to repay a digital asset was not an obligation to repay money and was therefore not a deferred debt, but a margin extension in a national currency created a deferred debt, and so the product was a credit facility.