Financial Services and Credit Monthly Update December 2024
CORPORATE
Beneficial ownership reforms affecting unlisted companies
The Federal Government has committed to making an open register of beneficial ownership. It released a consultation paper in 2022, outlining policy specifications for new requirements of unlisted companies. Treasury has now updated the policy specifications based on the approach outlined in the 2022 consultation, feedback from that consultation, and findings of the privacy impact assessment (PIA). The PIA and Treasury’s response to the PIA has also been published.
COMPETITION
Updates to immunity policy for cartel conduct
On 18 December 2024, the Australian Competition and Consumer Commission (ACCC) released an update of its immunity and cooperation policy for cartel conduct. The update provides clarification on the ACCC’s approach to applications for immunity and the requirements for applicants, which include entering into a cooperation agreement with the ACCC.
DIGITAL ASSETS
ASIC seeks feedback on updated digital asset guidance
The Australian Securities and Investments Commission (ASIC) has released Consultation Paper 381 (CP 381), proposing updates to Information Sheet 225 (INFO 225) on digital assets. The updates aim to clarify the application of current financial product definitions to digital assets and related products. ASIC’s proposed changes include 13 practical examples to illustrate these definitions. The consultation seeks feedback on various aspects, including the application of existing Australian financial services licence processes to digital assets, practical licensing issues for wrapped tokens and stablecoins, and potential regulatory relief measures. Feedback is due by 28 February 2025. ASIC plans to publish the final version of the updated INFO 225 in mid-2025, following the review of submissions.
ESG
APRA conducts climate vulnerability assessment for insurance sector
The Australian Prudential Regulation Authority (APRA) has commenced a Climate Vulnerability Assessment involving Australia's five largest general insurers: IAG, Suncorp, Allianz, QBE, and Hollard. The assessment aims to model potential insurance affordability scenarios through to 2050, examining how climate-related risks might influence the insurance sector. APRA emphasises that the scenarios are exploratory models, not predictions of future outcomes. Key aspects of the assessment include:
analysing potential insurance affordability changes;
exploring climate-related risk scenarios; and
providing insights into future insurance market dynamics.
APRA plans to collect data from participants in early 2025, with a comprehensive report expected later that year. The assessment will model multiple scenarios, including a baseline and two climate-related scenarios.
The full information paper is available on the APRA website.
Government responds to Modern Slavery Act review
On 2 December 2024, the Federal Government released its response to the statutory review of the Modern Slavery Act 2018 (Cth). The Government agreed, fully or partially, to 25 of the 30 recommendations, noting the remaining five. The Government will consult on a model for written declarations identifying high-risk areas for modern slavery, such as specific regions, industries, or products. Mr Chris Evans has been appointed as the inaugural Commonwealth Anti-Slavery Commissioner.
ACCC guide on sustainability collaborations
The ACCC has released a guide on sustainability collaborations and Australian competition law. The guide is designed to assist businesses to understand where competition law risks are not likely to arise when collaborating to improve sustainability outcomes. The guide also includes information on exemptions available for business collaborations.
FINANCIAL ADVICE
New financial advice reforms announced
The Federal Government has unveiled its outline of the second tranche of the Delivering Better Financial Outcomes package, aimed at expanding the provision of financial advice while removing unnecessary compliance requirements.
The reforms will introduce a new class of financial adviser, tasked with delivering simple, high-quality advice. These advisers will be required to complete an AQF level 5 diploma and will be restricted to advising on products issued by prudentially regulated entities. Licensees employing these advisers will bear full responsibility for the advice given, with additional monitoring and supervision obligations enforced through civil penalties.
The new class of adviser will be limited to advising existing customers or new customers who initiate the advice request, preventing unsolicited advice and cold-calling. The second tranche package also includes modernising the best interests duty into an outcomes-focused duty, replacing statements of advice with a principles-based record, and clarifying rules on advice topics payable via superannuation.
FINANCIAL SECTOR
Release of the Regulatory Initiatives Grid
On 19 December 2024, the Federal Government made available the new Regulatory Initiatives Grid (RIG) which lists announced and publicised reform priorities and initiatives that will materially affect the financial sector over the next two years. The RIG aims to improve visibility in the regulatory environment, to assist businesses in navigating upcoming regulatory changes and to help regulators with reform implementation. The RIG is available in three formats: a RIG report, an interactive dashboard, and an Excel workbook, which can be accessed here.
Mandating cash acceptance
The Treasury has released a consultation paper on mandating acceptance of cash payments. It is proposed that a corporation, in trade or commerce, that supplies an essential good or service to a consumer and offers in-person payment would be required to accept cash payment for those goods and services, unless it is an exempt small business. In relation to financial services, the only essential service identified is compulsory insurance associated with another essential item (e.g., unbundled compulsory third-party insurance). Comments are due by 14 February 2025.
PRIVACY AND DATA
Treasury responds to Privacy Impact Assessment on CDR changes
On 4 December 2024, Treasury released its response to the PIA that was conducted in respect of proposed changes to the Consumer Data Right (CDR) rules in relation to consent and other operational enhancements that were released in August 2024.
PRUDENTIAL
Minor updates to prudential framework
On 5 December 2024, APRA released a response to its consultation on proposed minor updates to the prudential framework for authorised deposit taking institutions, insurers and registrable superannuation entity licensees.
APRA seeking feedback on changes to ARS 110.0
APRA has published a letter to ADIs seeking feedback on proposed consequential amendments to Reporting Standard ARS 110.0 – Capital Adequacy. The letter follows APRA’s consultations on targeted liquidity changes in November 2023 and on Interest Rate Risk in the Banking Book reporting in July 2024.
Additional Tier 1 capital instruments to be phased out
APRA has confirmed that it will phase out the use of Additional Tier 1 (AT1) capital instruments. APRA’s decision was made following a consultation process which found that AT1 failed to meet its regulatory objectives of stablising a bank undergoing financial stress or preventing a disorderly failure. APRA also announced the timeline for the transition to its proposed updated framework over the next eight years which includes:
large internationally active banks to be able to replace 1.5% AT1 with 1.25% Tier 2 and 0.25% Common Equity Tier 1 capital;
smaller banks to be able to fully replace AT1 with Tier 2, with a reduction in Tier 1 requirements; and
APRA’s requirements applicable to internationally active banks to remain in line with the international minimum standards.
Review into valuation and liquidity risk governance in superannuation
APRA has published its findings of a review into superannuation trustees’ implementation of enhanced valuation governance and liquidity risk management requirements under Prudential Standard SPS 530 Investment Governance (SPS 530), in light of the trustees’ increasing investments into unlisted assets. The review was conducted on 23 in-scope trustees representing around 80% of the total assets managed by APRA-regulated superannuation entities. Key findings of the review include:
half of the reviewed trustees require substantial improvements in either or both their valuation governance or liquidity risk management framework;
weaknesses in unlisted asset valuation governance are in areas of broad oversight and conflict of interest management, revaluation frequency and triggers, valuation control, and fair reporting; and
weaknesses in liquidity risk management are in areas of liquidity stress trigger frameworks, unlisted asset liquidity risks and liquidity action plans.
APRA expects all trustees to review the findings and implement necessary steps to align their practices with SPS 530.
SUPERANNUATION
Exit for legacy retirement product customers
The Federal Government has made new regulations enabling customers to exit certain legacy retirement products which are no longer fit-for-purpose and switch to more suitable options. The new regulations aim to facilitate retirees’ access to capital that would otherwise be locked under the legacy products. Changes under the regulations are effective for five years until 7 December 2029.
DISPUTES AND ENFORCEMENT
ASIC releases first industry-wide IDR data report
ASIC has published its inaugural industry-wide report on internal dispute resolution (IDR) data, covering the period from 1 July 2023 to 30 June 2024. Key findings from the report include:
Over 4.7 million complaints were reported, with general insurance products accounting for 33%, credit products 22%, and deposit-taking products 15%.
The majority of complaints (45%) were related to service issues, followed by charges (22%) and transactions (11%).
Most complaints were resolved with an explanation or apology (43%), a service-based remedy (39%), or a monetary remedy (13%).
Over three-quarters of complaints were resolved within one day, and monetary remedies totalled over $375 million.
ASIC expressed concerns about the accuracy of the reported data, noting discrepancies and gaps that suggest some firms may not be fully compliant with reporting requirements.
ASIC plans to publish firm-level data starting in 2025 and will consult on how to contextualise and present this data. The regulator says that it will continue to engage with firms to ensure compliance and improve IDR practices.
ASIC puts insurers on notice for complaints handling failures
ASIC has issued a warning to general insurers following a review that revealed significant shortcomings in their complaints handling processes. The review, which assessed the IDR practices of 11 general insurers, found that one in six customer complaints were not identified.
ASIC's analysis highlighted several areas of concern, including the failure to identify complaints and systemic issues, as well as inadequate communication with customers. The volume of general insurance complaints to the Australian Financial Complaints Authority (AFCA) surged by 50% in the 2022-23 financial year and continued to rise in 2023-24. The review also found that insurers identified systemic issues at a much lower rate than AFCA, with nearly half of the insurers failing to identify any systemic issues at all.
ASIC has called on insurers to improve their IDR practices and will require them to prepare action plans to address the identified issues. ASIC expects insurers to build a positive complaints management culture that values and learns from customer feedback to prevent recurring problems.
ASIC accepts court enforceable undertaking from Lent NT
ASIC has accepted a court enforceable undertaking (CEU) from Lent NT Pty Ltd (Lent NT), a pawnbroking business in the Northern Territory, and its sole director, Ms Te Maro following an admission that Lent NT engaged in unlicenced credit activity by providing “Drive Away Loans” to consumers. Under these loans, consumers used their motor vehicle as security while retaining possession of the vehicle during the loan term. The provision of these loan arrangements was beyond the scope of Lent NT’s pawnbroking licence and required a credit licence. Under the CEU, Lent NT and Ms Te Maro are required to implement a remediation program for all Drive Away Loan consumers which includes refunds of prohibited fees, charges and interest charged.
ASIC sues HSBC on failure to protect customers from scams
ASIC has commenced proceedings against HSBC Bank Australia Limited (HSBC) alleging that it failed to:
implement adequate controls to prevent and detect unauthorised payments;
investigate customer reports of unauthorised payments within specified timeframes required; and
reinstate banking services in a timely manner – averaging 95 days for full restoration.
The allegations concern the period between January 2020 and August 2024 during which HSBC received around 950 reports of unauthorised transactions resulting in total customer losses of approximately $23 million. From mid-2023, HSBC received an increasing number of reports of unauthorised transactions from customers who were victims of impersonation scams. ASIC is seeking declarations, pecuniary penalties and adverse publicity orders against HSBC.
Kraken penalty decision: $8 million fine
Bit Trade Pty Ltd, the operator of the Kraken cryptocurrency exchange in Australia, has been ordered to pay an $8 million penalty in a decision of the Federal Court. Bit Trade offered a “margin extension” product to over 1,100 Australian customers without a target market determination (TMD), as required under the design and distribution obligations (DDO) regime. The product allowed margin extensions to be made and repaid in digital assets like Bitcoin or in national currencies such as US dollars. In its August 20124 decision, the Federal Court found that offering margin extensions in national currencies constituted a credit facility, necessitating a TMD. In his judgment, Justice Nicholas noted that Bit Trade's contraventions were serious and motivated by a desire to maximise revenue, reflecting a deficient compliance system. Bit Trade was also ordered to pay ASIC's legal costs for the proceedings.
ASIC sues Binance for consumer protection failures
ASIC has commenced proceedings against Oztures Trading Pty Ltd, trading as Binance Australia Derivatives (Binance) for misclassifying a number of retail clients as wholesale clients between 7 July 2022 and 21 April 2023. ASIC alleges that, due to the misclassification, Binance failed to:
provide the consumers with a product disclosure statement for its derivative products;
make a TMD as required;
implement a compliant IDR process;
ensure that its financial services were provided efficiently, honestly and fairly;
comply with its licence conditions; and
ensure that its employees were adequately trained and competent.
ASIC is seeking penalties, declarations and adverse publicity orders against Binance.
ASIC sues Swoosh for breaches of DDO and responsible lending obligations
ASIC has filed legal proceedings against Ausfinancial Pty Ltd, trading as Swoosh Finance (Swoosh) alleging breach of responsible lending obligations in relation to credit provided to 11 consumers between October 2019 and October 2024. ASIC claims that Swoosh provided credit contracts to those consumers despite failing to assess the loans as being unsuitable where there were indicators of unsuitability, and that it failed to make reasonable inquiries and verify the consumers’ financial situation, requirements and objectives. In addition, ASIC alleges that Swoosh contravened DDO by failing to review its TMDs, despite receiving increasing complaints directly from customers or via AFCA.
Federal Court finds CFD issuers engaged in systemic unconscionable conduct
On 20 December 2024, the Federal Court determined that Union Standard International Group Pty Ltd (USG) and its former representatives, BrightAU Capital Pty Ltd (TradeFred) and Maxi EFX Global AU Pty Ltd (EuropeFX), engaged in systemic unconscionable conduct between 2018 and 2020. Customers of EuropeFX and TradeFred incurred losses exceeding $83 million during this period. The Court found that these companies profited directly from client losses and incentivised account managers to pressure investors into depositing additional funds. Their onboarding processes targeted inexperienced or vulnerable customers, many of whom were unaware of the risks associated with complex financial products like contracts for difference (CFDs).
The Court also found that USG breached its obligation to provide financial services "efficiently, honestly and fairly" under its Australian financial services licence when USG offered services to customers in China, knowing, or reasonably expected to know, that these clients were likely contravening Chinese law. USG failed to warn customers about potential civil and criminal liabilities in China.
Sanlam admits to inadequate oversight of authorised representatives
On 23 December 2024, ASIC announced that Sanlam Private Wealth Pty Ltd (Sanlam) had admitted to insufficient supervision of its authorised representatives and corporate authorised representatives (CARs). Sanlam had up to 42 CARs and 71 authorised representatives operating under its Australian financial services licence. ASIC's investigation revealed that Sanlam lacked adequate resources and processes to ensure compliance with financial services laws among its representatives. Notably, some CARs were fintech firms offering online trading platforms and crypto-based investment products to retail clients, posing significant risks.
As part of a court enforceable undertaking, Sanlam is required to engage an independent expert, approved by ASIC, to review its compliance systems and processes. The firm must also develop remedial action plans to address the identified deficiencies, subject to review by both ASIC and the independent expert.
Government reviews legal professional privilege in Commonwealth investigations
On 6 August 2023, the Australian Government initiated a review into the application of legal professional privilege (LPP) during Commonwealth investigations. This review is being jointly conducted by the Attorney-General’s Department and Treasury. As part of this process, a discussion paper was released on 23 December 2024, inviting public submissions until 28 February 2025. The discussion paper outlines key issues identified through initial consultations with stakeholders, including regulatory and enforcement agencies, legal professionals, business and industry representatives, and academics. The aim is to assess how LPP is utilised in Commonwealth investigations and to explore potential reforms.