Financial Services and Credit Monthly Update July 2024
COMPETITION
ACCC interim authorisation for Armaguard financial support
The Australian Competition and Consumer Commission (ACCC) has granted an interim authorisation for up to 12 months for the Australian Banking Association (ABA), banks and retailers to provide Armaguard with financial contributions. The financial support is part of a wider set of conduct for which authorisation is sought, with other conduct including discussion on operational sustainability and efficiency measures and development of an independent pricing mechanism for Armaguard’s cash services.
CONSUMER PROTECTION
Consumers warned of financial recovery scam
The National Anti-Scam Centre is alerting victims who have had money stolen by scammers to the danger of offers to recover their money for an upfront fee. The alert follows an increase in reports of scams involving a money recovery element, with 158 reports received by Scamwatch between December 2023 and May 2024 for a total loss of over $2.9 million (including losses from the original scam). Consumers aged 65 and over form the largest reporting group and suffered the highest average losses.
ACMA consent expectations for direct marketing
On 1 July 2024, the Australian Communication and Media Authority (ACMA) issued a statement of expectations for businesses using consumer consent to conduct marketing by phone, email or text messages. The statement provides guidance for businesses to ensure that consumer consent is obtained for marketing purposes, to meet consumer expectations and to comply with their legal requirements. The statement says that businesses are expected to adopt consumer-friendly practices which include:
obtaining express consent through clear and accessible terms and conditions;
ensuring terms and conditions explain what the consent is for, who will use it, the length of consent period, and process for consent withdrawal; and
allowing consumers to easily unsubscribe or withdraw their consent to marketing.
Major technology companies adopt Australian Online Scam Code
On 26 July 2024, the Digital Industry Group Inc. published the Australian Online Scam Code (AOSC), a new online industry scam code, which has been signed by eight major technology companies including Google, Meta, Snapchat, TikTok, Twitch, Yahoo, Discord and X. The AOSC commits the signatories to nine proactive consumer protection measures, including:
deploying measures to block suspected scams;
providing a simple and quick route for users to report possible scams;
taking down verified scam content and scammers;
protecting people from scam advertising;
protecting people from scam emails and private messages;
engaging with law enforcement efforts to tackle scams;
contributing to public-private and cross-sectoral initiatives to address scams;
providing information about scam risks and supporting counter-scam efforts; and
contributing to strategy development and future proofing exercises to stay ahead of threats.
National Anti-Scam Centre combats job and employment scams
The National Anti-Scam Centre will establish a jobs and employment scam taskforce to disrupt scam groups advertising or offering non-existent jobs. Losses from job scams spiked in 2023 with 4,830 reports made to Scamwatch for a total loss of $24.3 million which reflected an increase of 151% compared to 2022. Job scams have been on the fall in 2024 with $6.4 million losses recorded to date. The National Anti-Scam Centre will collaborate with law enforcement, banks, digital currency exchanges, job advertisement websites, impersonated recruitment agencies and social media platforms where job scams are shared, in its efforts to combat these scam groups.
Minister speaks on scams
On 31 July 2024, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, delivered an address to the National Press Club on the Federal Government’s approach to tackle scams.
Mr Jones said that the Federal Government had been deploying measures to combat scams, including the establishment of the National Anti-Scam Centre with specialised taskforces to attack investment and employment scams.
Mr Jones also said that the centrepiece of the next phase of the Government’s response to scams is the introduction of a Scams Code Framework and new mandatory industry codes applicable to banks, telcos and digital platforms. These codes will require each sector to address the vulnerabilities in the ecosystem that they are responsible for.
The Minister’s speech included the following comments in relation to the proposed codes:
They will require the banks to strengthen controls around bank transfers. This will attack the most common payment method for scams head on.
Businesses will have a responsibility to report and respond to scams. For example, banks will need systems that identify dodgy payments and accounts and then take action to protect members; telecommunication companies will be required to block known scam numbers; and social media platforms will need to have stronger anti‑scam actions – including verifying advertisers and taking down scam pages.
There will be a clear pathway of support for victims and targets of scams.
The codes will impose an obligation on businesses to help their customers directly with complaints and they will be backed up by an independent external process to escalate complaints.
If there is a breach of a code, the bank, telco or digital platform will be held to account. If they “drop the ball” and a victim loses money, they will be liable to compensate the victim. That liability may be shared between more than one business.
CORPORATE
Review of effectiveness of amendments enabling online meetings and electronic documentation
The Federal Government is seeking feedback on the effectiveness of the amendments made to the Corporations Act 2001 (Cth) which enabled companies and registered schemes to hold online meetings, execute documents electronically, and transmit meeting-related documents electronically. The consultation closed on 19 July 2024.
Exposure draft of merger and acquisition reforms
On 24 July 2024, the Treasury published the exposure draft of the Treasury Laws Amendment Bill 2024: Acquisitions (Cth) as part of the delivery of the Federal Government’s reforms to merger rules and processes announced in April 2024. The exposure draft provides the framework of this new system which includes:
notification requirements and their timelines;
definition of acquisitions;
test to be applied for the consideration of competition impacts and substantial public benefits; and
procedural safeguards.
Submissions on the exposure draft can be made until 13 August 2024.
FINANCIAL ADVICE
Reforms to financial advice laws enacted
The Federal Government has enacted the first tranche of legislation to enhance consumer access to quality and affordable financial advice. The Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024 (Cth) received assent on 9 July 2024. The legislation will:
streamline fee documentation;
enable flexibility in how financial services guides are provided;
strengthen transparency and protections for consumers of personal advice regarding financial products; and
clarify that consumers can use their superannuation accounts to pay for personal financial advice about their superannuation from an independent financial adviser.
The second tranche of reforms will be developed in the second half of the year and will include reforms to statements of advice, updates to the best interests duty, removal of safe harbour steps, and measures to enable increased provision of advice by financial institutions.
AFS licensees urged to correct records on financial advisers
The Australian Securities and Investments Commission (ASIC) has requested Australian financial services licensees to examine the accuracy of records on the Financial Advisers Register and rectify any incorrect or outdated information, particularly information regarding their financial adviser’s qualifications, ability to provide tax (financial) advice services and contract details. ASIC’s request follows a spot check which revealed errors and inconsistencies in relation to financial adviser qualifications. Some of the qualifications marked as ‘approved’:
did not accurately match the wording of the prescribed course;
were not approved qualifications but they were professional designations or bridging courses; and
were not the prescribed approved qualifications.
ASIC said that it will commence a compliance program from 1 August 2024 to ensure information on the Financial Advisers Register regarding approved qualifications is accurate and will take enforcement action if necessary.
FINANCIAL MARKETS
ASIC report on integrity of financial markets
On 24 July 2024, ASIC published a report on the cleanliness of Australian financial markets which shows that they continue to operation with a high level of integrity and remain among the cleanest in the world. A clean market is one where there are no share price run-ups before the announcement of material information, which is an indication of unfair insider trading taking place. The report reveals two periods of temporary deterioration of market cleanliness during the five-year period up to 30 April 2024: during the COVID-19 pandemic, when there was high market volatility and trading, and in late 2023 as corporate activity increased.
In its efforts to protect the market integrity, ASIC targets pump and dump activities and undertakes targeted reviews of leaks observed ahead of market announcements. ASIC is also establishing a dedicated insider trading investigation team. In the 2024 financial year, ASIC ramped up its insider trading investigations to nearly double the number of investigations conducted in the previous financial year.
Consultation on cash equity clearing and settlement services rules
ASIC is seeking submissions on proposed rules to facilitate competitive outcomes in cash equity clearing and settlement services provided by ASX Group. The proposed rules aim at ensuring ASX remains responsive to its governance framework and providing access to its cash equity clearing and settlement services on a transparent and non-discriminatory basis. The consultation closes on 10 September 204.
Consultation on introduction of central clearing of bonds and repos in Australia
Following a recent analysis by the Reserve Bank of Australia (RBA), the Council of Financial Regulators (CFR) is seeking submissions on the magnitude of costs and benefits associated with the introduction of a central counterparty that clears transactions in the Australian bond and repo markets. As part of the consultation, the CFR is also seeking feedback on aspects of the bond and repo markets that are not functioning efficiently. The consultation closes on 4 September 2024.
FINANCIAL PRODUCTS
Class order on term deposits extended
The operation date of the ASIC Corporations (Amendment) Instrument 2024/276 which amends the ASIC Class Order [CO 14/1262] (Class Order) has been extended to 31 March 2025. Under the Class Order, term deposits with a minimum 31-day notice period for early withdrawal are treated as basic deposit products.
FINANCIAL SYSTEM
Financial Accountability Regime final rules
On 11 July 2024, ASIC and the Australian Prudential Regulation Authority (APRA) issued final rules and information for the Financial Accountability Regime (FAR), particularly in relation to the insurance and superannuation industries. The final rules and information package include:
an amendment to the Regulator rules prescribing key functions information for inclusion in the FAR register of accountable persons for the insurance and superannuation industries;
a joint letter by ASIC and APRA summarising key issues raised in the consultation process and their response;
an updated information paper to assist entities and their accountable persons in understanding and complying with the FAR obligations;
an updated accountability statement guide and template to assist entities subject to the FAR enhanced notification obligations in their preparation of accountability statements; and
reporting form instructions to help insurance and superannuation entities in providing required information to ASIC and APRA.
Further support for banking services in the Pacific
In response to the global trend of financial institutions reducing or withdrawing their services in the Pacific, the Federal Government has announced that it will make further investments to help prevent the demise of banking services. In addition to the existing support arrangements, the Federal Government will invest an additional $6.3 million consisting of:
$2.9 million to the World Bank to support the development of inclusive and secure digital identity infrastructure across the Pacific Island countries;
$1.7 million to the Asian Development Bank to enhance regional compliance with anti-money laundering and counter-terrorism financing (AML/CTF) requirements; and
$1.7 million for the Attorney-General’s Department to assist with criminal justice and law enforcement capacity in the region.
Federal Government responses to Committees’ reports
On 30 July 2024, the Federal Government published its formal responses to the recommendations made under the following reports:
report on the life insurance industry by the Joint Committee on Corporations and Financial Services;
report on impairment of customer loans by the Joint Committee on Corporations and Financial Services;
report on the development of the Australian corporate bond market by the House Committee on Tax and Revenue; and
report on the review of the four major banks by the House Committee on Tax and Revenue.
The Federal Government’s responses to the above recommendations were that the Government had noted the recommendations but due to a lapse of time since the reports were tabled, it was no longer appropriate for the Government to provide a substantive response.
INSOLVENCY
Reforms to bankruptcy law
The Federal Government will introduce reforms to Australian bankruptcy law. The key changes include:
increasing the involuntary bankruptcy threshold from $10,000 to $20,000, with the threshold being indexed each year;
increasing the timeframe for a debtor to respond to a bankruptcy notice from 21 to 28 days;
lowering the period a discharged bankruptcy is publicly recorded on the National Personal Insolvency Index to seven years after discharge from bankruptcy; and
removing the proposal, or acceptance, of a debt agreement as an act of bankruptcy for the purpose of s 40(1) of the Bankruptcy Act 1966 (Cth).
The Attorney-General’s Department is also seeking submissions on the introduction of a Minimal Asset Procedure to clear a person’s debts and enable a fresh start sooner than a bankruptcy, where the person has no other way to pay.
PRIVACY AND DATA
ABA review of CDR
The ABA has published the findings of a strategic review into the banks’ implementation of the Consumer Data Right (CDR) regime. The CDR was first made available to customers of major banks in July 2020 and to customers of other banks in July 2021. The review found that:
only 0.31% of bank customers were using CDR at the end of 2023;
the banking industry has invested approximately $1.5 billion into CDR in addition to significant government investment;
CDR has had an adverse impact on competition due to its high compliance costs;
high compliance costs have led to investment trade-offs, resulting in vital technology and customer projects being deprioritised; and
other banking digital innovations (e.g. mobile wallets and PayID) have had significantly higher uptake on the same timeline from launch.
ABA Chief Executive Officer, Anna Bligh, said that the CDR had not realised its potential, the current CDR regime was not delivering for customers or enhancing competition, and a new pathway is needed.
Updates to the Privacy (Credit Related Research) Rule 2014
The Privacy Commissioner has made the Privacy (Credit Related Research) Rule 2024 (Cth) with effect from 9 July 2024. The rule replaces the existing rule of the same name. It allows for credit reporting bodies to use and disclose de-identified information for research in relation to credit for certain purposes.
PRUDENTIAL
APRA finalises requirements for Interest Rate Risk in the Banking Book
APRA has released its finalised revisions to the prudential standard, reporting standard, and practice guide for Interest Rate Risk in the Banking Book (IRRBB) for authorised deposit-taking institutions (ADIs), consisting of Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS 117), Reporting Standard ARS 117.0 IRRBB Repricing Analysis Collection and Reporting Standard ARS 117.1 IRRBB Capital Charge Collection, and their relevant practice guides. The revised APS 117 takes effect on 1 October 2025.
The purposes of the revisions to APS 117 are to:
address concerns raised in the large interest rate fluctuations and last year’s international banking crisis;
provide better incentives for ADIs (particularly larger ADIs) in managing their interest rate risk, including raising standards of governance and the measurement of risk;
simplify the IRRBB framework and ensuring a proportionate approach across ADIs;
for smaller ADIs, to reaffirm existing risk management requirements; and
for larger ADIs, to reduce volatility over time and discrepancies between ADIs in the calculation of the IRRBB capital charge, and to not result in a material increase in capital for the whole industry.
APRA reforms to banks’ liquidity and capital requirements
ARPA has finalised the following two targeted reforms (effective from 1 July 2025) to banks’ liquidity and capital requirements designed to strengthen banks’ ability to respond to future stress events:
banks subject to the Minimum Liquidity Holdings (MLH) regime for calculating their liquidity requirements will be required to adjust the value of their liquid assets regularly for movements in market prices; and
all banks will be required to be operationally ready to provide certain key information regarding their financial position when requesting exceptional liquidity assistance from the RBA.
APRA has deferred consideration of a proposal to abolish bank debt securities as liquid assets for MLH banks until the commencement of its planned broader review of liquidity risk. In the meantime, MLH banks are expected to improve the diversification of their liquidity portfolios in compliance with APRA’s existing requirements and guidance. Banks with material concentrations of bank debt securities will be subject to heightened supervisory attention from APRA.
SUPERANNUATION
Superannuation trustees urged to boost oversight of retirement strategy implementation
ASIC and APRA are pushing superannuation trustees to increase efforts in tracking and measuring the impact of their strategies to improve retirement outcomes for their members. ASIC and APRA’s joint message follows a recent survey which found that only incremental progress has been made by trustees to measure and track income strategies. The survey also highlighted challenges in implementing the Retirement Income Covenant, such as the uncertainty around the financial advice framework, privacy, security, lack of member’s engagement and financial constraints.
APRA updates core superannuation standard to support outcomes for members
APRA has updated Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) and its guidance (Prudential Practice Guide SPG 515 Strategic Planning and Member Outcomes (SPG 515)) to reinforce superannuation fund trustees’ duty to act in the best financial interests of members. The updates aim at ensuring members’ interests are prioritised in trustees’ strategic and business planning, financial resource management, implementation of the retirement income covenant, and fund transfers. The updated SPS 515 takes effect on 1 July 2025.
The revised SPG also clarifies APRA’s expectations for trustees regarding expenditure, including provisions on:
design principles for a robust expenditure management framework; and
recommended practice for trustee to obtain yearly attestation from accountable senior executive management that reasonable steps are taken to satisfy SPS 515 regarding expenditure management.
AML/CTF
Inquiry into money laundering and financial crime law enforcement
The Federal Parliament’s Joint Committee on Law Enforcement has commenced an inquiry into the challenges posed by money laundering and law enforcement’s capacity to respond to them. The scope of the inquiry includes:
the scale and forms of money laundering and financial crime in Australia;
Australia’s AML/CTF legislation, and comparing it with other jurisdictions and international standards;
the proposed second tranche of reforms to expand the scope of the AML/CTF regime to cover services by lawyers, accountants, trust and company service provides, real estate agents and dealers in precious metals and stones, and the implications for law enforcement;
whether existing criminal offences and law enforcement powers and capabilities are appropriate to combat money laundering;
the effectiveness of collaboration, coordination and information sharing between Commonwealth agencies and other stakeholders;
the role and response of businesses and other private sector organisations; and
the operation of unexplained wealth and asset recovery legislation, the Criminal Assets Confiscation Taskforce, and the Confiscated Assets Account.
Submissions closed on 31 July 2024.
AUSTRAC releases national risk assessments
On 8 July 2024, the Australian Transaction Reports and Analysis Centre (AUSTRAC) published two national risk assessments on money laundering and terrorism financing in Australia, highlighting their sophistication and magnitude. The assessment on money laundering reveals that launderers still opt for traditional methods of using cash, banks, luxury goods, real estate and casinos to conduct their operations, despite the emergence of new avenues. One of the key findings under the terrorism financing assessment is that retail banking, remittance and exchanging cash remain the preferred channels for transferring funds, while social media and crowdfunding platforms have also played a vital role in funding terrorist activities. The national risk assessments can be accessed here.
DISPUTES AND ENFORCEMENT
Inquiry into ASIC investigation and enforcement
The Senate Economics References Committee has released a report on the capacity and capability of ASIC to undertake investigation and enforcement action. The report concluded that ASIC’s capacity to respond to corporate misconduct is compromised due to significant structural, resourcing and cultural issues. The report also stated that although ASIC had been showcasing its recent enforcement actions, corporate law was being underenforced. Based on the findings, the Committee made 11 recommendations, including a split of the ASIC functions of companies regulator and financial conduct authority.
AFCA updates rules and operational guidance
The Australia Financial Complaints Authority (AFCA) has released an updated version of its Rules and Operational Guidelines which apply to complaints lodged from 1 July 2024. The updates follow recommendations made by the Treasury under an independent review.
The updated Rules and Operational Guidelines introduce the following key changes:
strengthening AFCA’s ability to manage unreasonable or inappropriate conduct from complainants and paid representatives (e.g. lawyers);
providing AFCA with discretion to cease consideration of a complaint where appropriate settlement has been made;
enhancing transparency to AFCA’s practice of excluding a complaint that has been fully and finally settled between the parties (except where special circumstances apply); and
minor updates to clarify reporting and transparency obligations.
PayPal Australia liable for unfair contract term
The Federal Court has found an unfair term in the standard form contracts that PayPal Australia Pty Limited (PayPal) used for small businesses. The term had the effect of allowing PayPal to retain fees that it had erroneously charged if the small business failed to notify PayPal within 60 days of the fees being included in the account statement. The term has been declared as void and PayPal is barred from applying, relying on or enforcing the term. The Court’s findings are on the basis that small businesses were not in a position to manage the risk of incorrect charging of fees, or identify whether the fees had been incorrectly charged, as the account statements did not set out the various fees or their calculations. These terms applied to small businesses that opened a PayPal Business Account between 21 September 2021 and 7 November 2023.
ASIC wins first DDO case against Firstmac
On 10 July 2024, the Federal Court found Firstmac Limited (Firstmac) had breached the product design and distribution obligations (DDO) by failing to take reasonable steps to ensure that the distribution of its investment product, High Livez, was consistent with the TMD for the product. Between October 2021 and September 2022, Firstmac implemented a ‘cross-selling strategy’ of marketing investments in the High Livez product to its 780 existing term deposit holders. However, Firstmac provided these customers with the product disclosure statement for the High Livez product without ensuring that they were in the target market under the target market determination (TMD). The outcome marks the first finding by a court of a contravention of the DDO provisions.
American Express fined for breaching DDO
The Federal Court has imposed $8 million in penalties on American Express Australia Limited (Amex) for failing to comply with DDO in relation to two co-branded credit card products which are primarily distributed in David Jones stores. Amex was found to have contravened DDO between 25 May 2022 and 5 July 2022 as it:
ought to have known that high cancelled application rates reasonably indicated that its TMDs for the credit cards were no longer appropriate; and
failed to stop the issuance of the credit cards when it had not reviewed the TMDs.
APRA reduces Westpac’s operational risk capital add-on
APRA has reduced by $500 million the $1 billion capital add-on which it had imposed on Westpac Banking Corporation (Westpac) in 2019 to reflect Westpac’s high operational risk profile. Following the imposition of the capital add-on in 2019, Westpac entered into a court enforceable undertaking with APRA to remediate weaknesses in its culture, governance and accountability, and address causes of these issues. In delivering its undertaking, Westpac established the Customer Outcomes and Risk Excellence (CORE) Program and appointed an independent reviewer. The decision to reduce the capital add-on followed APRA’s recognition of Westpac’s efforts under CORE. The remainder of the add-on is subject to Westpac’s completion of its transition work which is to be validated by APRA.
APRA accepts court enforceable undertaking from OnePath
APRA has accepted a court enforceable undertaking from OnePath Custodians Pty Limited (OnePath) to rectify its compliance deficiencies and compensate affected members. The undertaking is in addition to OnePath’s payment of $10,704,600 under infringement notices issued by APRA for alleged contraventions of the Superannuation Industry (Supervision) Act 1993 (Cth) for failure to invest members’ default contributions in MySuper products. In order to address APRA’s concerns that its failures are indicative of cultural and governance failures within its organisation, OnePath has committed to:
identify, rectify and remediate all members adversely affected by the breaches in consultation with an independent expert;
allocate additional resources to replenish the Operational Risk Requirement to 100% of the target balance of 0.25% of funds under management; and
hold $40 million of its existing Operational Risk Financial Requirement assets as an overlay until it has satisfied the terms of the undertaking.
Individuals charged for Telegram ‘pump and dump’ conspiracy
Four individuals have been criminally charged with conspiracy to commit market rigging and false trading, to artificially pump up the price of Australian shares before dumping them at inflated prices. They are subject to a potential maximum penalty of 15 years’ imprisonment and a fine of over $1 million. The charges laid followed an ASIC investigation which revealed that the defendants allegedly formed a private group on the Telegram messaging app where they chose and announced the penny stocks to inflate to the public Telegram group chat named ‘ASX Pump and Dump Group’. The defendants are also subject to the charges of dealing with crime proceeds in relation to the money obtained from the conspiracy.