Financial Services and Credit Monthly Update - September 2024
Our latest Financial Services and Credit Monthly Update for September 2024 is now available to download - just click on the button below.
September has been a big month for regulatory developments, with the introduction of Bills for AML/CTF and privacy reforms, and exposure draft legislation on the Scams Prevention Framework. Read all about it in our Update.
Please share the Update with colleagues who may be interested in our publications.
As always, we’re here to help if you need legal advice on regulatory compliance!
Patrick Dwyer and Kathleen Harris
Legal Directors
COMPETITION
Collaboration to support cash-in-transit services authorised
The Australian Competition and Consumer Commission (ACCC) has granted an authorisation enabling collaboration between the Australian Banking Association (ABA), its member banks, Australia Post, retailers, supermarkets and other industry participants to ensure the continuity of cash-in-transit services and to prepare for any suspension or disruption of those services. The authorisation is conditional on the ABA providing regular reports to the ACCC about the steps taken regarding consultation with nationwide industry participants. In addition, the ACCC has granted an interim authorisation for the ABA, banks and retailers to provide financial support to Armaguard, and to collaborate and reach in-principle agreement on operational sustainability.
CONSUMER PROTECTION
Consultation on Scams Prevention Framework
On 13 September 2024, the Federal Government released exposure draft legislation for the establishment of the Scams Prevention Framework. The draft legislation will form a new part of the Competition and Consumer Act 2010 (Cth) and enable the ACCC to enforce scam prevention obligations, including the power to issue penalties of up to $50 million for contraventions. The proposed Scams Prevention Framework would:
enable the Minister to designate sectors and set up sector-specific codes imposing mandatory obligations to combat scammers. The initial designated sectors include banks, telcos and a range of digital platform services related to social media, paid search engine advertising and direct messaging services;
require designated sectors to have accessible and transparent internal dispute resolution mechanisms for customers;
enable an external dispute resolution (EDR) scheme to be nominated for all scam complaints. The Australian Financial Complaints Authority is intended to operate the EDR scheme for the initial designated sectors; and
establish a coordinated intelligence sharing ecosystem by mandating timely reporting and information sharing across industry and government.
Submissions can be made until 4 October 2024.
CORPORATE
Report of Statutory Review of Meetings and Documents Amendments
On 9 September 2024, the Federal Government tabled the report of the Statutory Review of the Meetings and Documents Amendments. The review assessed the amendments made to the Corporations Act 2001 (Cth) (the Corporations Act) in 2021-22 which allowed for virtual company meetings and the electronic distribution, signing and execution of company documents. The report makes several recommendations which are now under consideration by the Government.
DIGITAL ASSETS
CBDC developments
The Reserve Bank of Australia (RBA) and Treasury have released a report on central bank digital currencies (CBDC), summarising past research and their current stance. The report outlines a three-year plan for digital money research. It concludes that there is no strong need for a retail CBDC in Australia, as the existing payment system is sufficient. However, the RBA and Treasury are open to reconsidering as they learn more about global and domestic benefits and costs. The report also considers how a wholesale CBDC could enhance financial market efficiency by integrating with other digital money forms and infrastructure upgrades.
In a speech titled “Financial Innovation and the Future of CBDC in Australia” delivered at the Intersekt conference on 18 September 2024, RBA Assistant Governor (Financial System), Mr Brad Jones, said that the RBA is making a “strategic commitment” to prioritise its work agenda on wholesale digital money and infrastructure – including wholesale CBDC – rather than retail CBDC.
ESG
Interim report on sustainable finance taxonomy
The Australian Sustainable Finance Institute (ASFI) and the Federal Government have partnered to develop an initial Australian sustainable finance taxonomy to provide common definitions for sustainable economic activities, directing private investment to activities that support Australia’s transition to net zero emissions, and preventing greenwashing issues. The ASFI has published an interim report on the progress of the project, analysis of the taxonomy deliverables, and a summary of stakeholder consultation conducted.
FINANCIAL MARKETS
Financial market infrastructure legislation enacted
The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) received assent on 17 September 2024. The Act implements the financial market infrastructure regulatory reforms recommended by the Council of Financial Regulators in July 2020. The Act:
introduces a crisis management and resolution regime;
enhances Australian Securities and Investments Commission (ASIC) and RBA licensing, supervisory and enforcement powers; and
streamlines and transfers roles and responsibilities between the Minister, ASIC and the RBA.
Annual assessment of ASX Clearing and Settlement facilities
On 25 September 2024, the RBA released the performance assessment of the Australian Securities Exchange’s (ASX) Clearing and Settlement (CS) facilities against the RBA’s Financial Stability Standards (FSS) over the period 1 July 2023 to 30 June 2024. The report found that ASX CS facilities were rated as having ‘observed’ or ‘broadly observed’ many FSS, but requirements under specific FSS on some governance and risk categories had only been ‘partly observed’, with key concerns relating to technology and cyber risks and risk management. The RBA has required ASX to conduct significant work to address the key concerns and issued a number of recommendations for ASX.
Further guidance on operational resilience
On 17 September 2024, ASIC published a letter to market participants outlining technological and operational resilience guidance, providing clarification on how critical business services can be identified, and on notification of major events. Market participants are expected to maintain a strong and continued focus on technological and operational resilience and are urged to carefully consider the guidance to implement any required adjustments to their critical business services arrangements and major event notification practices.
Updates to OTC derivative transaction reporting and clearing rules
ASIC has finalised changes to the ASIC Derivative Transaction Rules (Reporting) 2024 and the ASIC Derivative Transaction Rules (Clearing) 2015 which will come into effect from 21 October 2024. In addition, ASIC has published guidance for the changes and a package of instruments to support the updates.
FINANCIAL SYSTEM
Consultation on Front Door proposal for investors
The Federal Government has commenced consultation on its proposed “Front Door” for investors with major, transformational investment proposals, with the aim of simplifying investments in Australia and attracting further global and domestic capital. The Front Door seeks to streamline investors and businesses’ interaction with the Government to make it easier for them to navigate approvals processes and expedite project implementation. Submissions can be made until 3 October 2024.
INSURANCE
Ban on use of adverse genetic test results in life insurance
The Federal Government has announced its intention to ban the use of adverse predictive genetic test results in life insurance underwriting. The ban will be subject to a 5 yearly review to avoid any unintended consequences.
PRIVACY AND DATA
Privacy Act Amendment Bill
The long awaited privacy reform Bill has been introduced to the Federal Parliament. The Privacy and Other Legislation Amendment Bill 2024 (Cth) seeks to introduce a range of significant changes to the Privacy Act 1988 (Cth), including:
an expansion of the Information Commissioner’s enforcement powers;
facilitating information sharing in emergency situations or following eligible events of data breaches;
a requirement to develop a Children’s Online Privacy Code;
providing protections for overseas disclosure of personal information;
enhancing transparency for individuals regarding the use of personal information in automated decision-making;
introducing a statutory tort for serious privacy invasions;
introducing criminal offences for the nonconsensual release of personal data using carriage service for a menacing or harassing purpose (known as ‘doxxing’); and
new civil penalties.
AI: proposed mandatory guardrails, and voluntary standard
On 5 September 2024, the Federal Government published a paper on proposed mandatory guardrails for the use and development of artificial intelligence (AI) in high-risk settings in Australia. The paper sets out three key issues on which the Government is seeking feedback:
how high-risk AI is defined;
the proposed mandatory guardrails to be imposed on developers and deployers of AI in high-risk settings; and
three regulatory options for implementing the mandatory guardrails.
Submissions can be made until 4 October 2024.
At the same time, the Government published a Voluntary AI Safety Standard which gives practical guidance on how to safely and responsibly use and innovate with AI. The standard has 10 voluntary guardrails that apply to all organisations throughout the AI supply chain. They include transparency and accountability requirements across the supply chain, and also explain what developers and deployers of AI systems must do. The 10 voluntary guardrails largely overlap with the proposed new mandatory guardrails.
PRUDENTIAL
Consultation on minor updates to prudential framework
On 6 September 2024, the Australian Prudential Regulation Authority (APRA) released for consultation a set of minor updates to the prudential standards and practice guides for authorised deposit-taking institutions, general, life and private health insurers and registrable superannuation entity licensees. The proposed updates are primarily technical clarifications and pose no material difference in policy settings. Submissions can be made until 4 October 2024.
Proposed changes to bank capital framework to strengthen crisis preparedness
APRA has proposed updates to the capital framework for banks in regard to hybrid instruments to simplify and improve bank capital effectiveness in an event of crisis. APRA’s proposal is that banks phase out the use of AT1 capital instruments (also known as hybrid bonds) and replace them with cheaper and more reliable forms of capital which APRA says would absorb losses more effectively in critical times. APRA does not propose any changes to the total amount of regulatory capital that banks are required to hold. Under APRA’s proposal:
large, internationally active banks would be able to replace 1.5% AT1 with 1.12% Tier 2 and 0.25 % Common Equity Tier (CET1) capital; and
smaller banks would be able to fully replace AT1 with Tier 2, with a reduction Tier 1 requirements.
The transition to the simpler capital framework is proposed to begin from 1 January 2027, with all current AT1 on issue expected to be replaced by 2032.
Submissions on the proposed changes can be made until 8 November 2024.
APS 117 remade
APRA has remade Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs), following a short consultation. APRA received no submissions to the consultation.
SUPERANNUATION
Superannuation funds urged to better engage millennials
Following a roundtable with leading influential panellists from financial advice, research and content creators, ASIC has urged superannuation funds to increase services, transparency and improve access to information to better engage millennial members. ASIC’s message follows findings from its recent research that 48% of surveyed millennials said that they lacked the knowledge to maximise their super. The roundtable panellists highlighted the need for easy access to tools and calculators together with goal-setting information as vital engagement for superannuation funds.
Payday super
Employers will have to pay employees’ super at the same time as their salary and wages under reforms proposed to commence on 1 July 2026. On 18 September 2024, the Federal Treasurer announced policy design details on these reforms.
There will be an updated super guarantee charge framework. This will provide that employees are fully compensated for any delay in receiving their super, incentivise employers to catch‑up on any missed payments quickly, and increase the severity of consequences for employers that deliberately or repeatedly breach their obligations. Businesses will become liable for the updated superannuation guarantee charge if super contributions are not received by their employees’ superannuation fund within seven days of payday.
The choice of fund rules will also be revised to make it easier for employees to nominate their existing super fund when they start a new job.
The Treasury has published a fact sheet which summarises the proposed changes.
Draft regulations on legacy retirement product conversions and reserves
The Federal Government has released exposure draft regulations to expand on and support implementation of the 2021–22 Budget measure to allow individuals to exit certain legacy retirement products. The draft regulations apply to legacy lifetime, life expectancy and market-linked superannuation income stream products that commenced prior to 20 September 2007, or which commenced as a result of a conversion of an earlier legacy product that commenced prior to that date. Submissions can be made until 8 October 2024.
AML/CTF
AML/CTF reform Bill
On 11 September 2024, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) was introduced to the Federal Parliament. The Bill proposes significant reforms to the anti-money laundering and counter-terrorism financing (AML/CTF) regime to better address risks posed by money laundering and terrorism financing and to meet international standards set by the Financial Action Task Force. The reforms are aimed at achieving three key objectives:
bringing additional high-risk services providers under the AML/CTF regime, including lawyers, accountants, trust and company service providers, real estate professionals, and dealers in precious stones and metals;
modernising the regulation of digital currency, and of virtual asset and payments technology; and
simplifying and clarifying the AML/CTF regime to enhance flexibility, reduce regulatory impacts and assist businesses to better prevent and detect financial crime.
DISPUTES AND ENFORCEMENT
ASIC report on enforcement and regulatory update
On 9 September 2024, ASIC published its report on enforcement actions for the period between 1 January and 30 June 2024 and regulatory development updates. The report reveals that in the first half of 2024, ASIC secured $32.2 million in civil penalties and 9 criminal convictions, and it has taken actions against a number of crypto-asset businesses to clarify what constitutes a regulated product. The report also highlights a number of reviews and investigations conducted by ASIC including on how 10 large home lenders supported their customers in financial hardship, superannuation trustee efforts to strengthen member retirement outcomes, greenwashing, and misconduct by banks.
Perspectives of ASIC on effective compliance
In a recent speech at the Australian Compliance Institute Annual Conference, ASIC Chair Joe Longo emphasised the strategic role of compliance professionals in fostering a culture of integrity, ethics, and trust within organisations. He said that compliance is not just about adhering to legal requirements but also about exceeding investor and societal expectations. Directors are responsible for setting the tone and leading a culture of compliance, while compliance professionals are closer to the operational aspects and play a critical role in identifying and managing risks. Mr Longo highlighted the importance of a curious mind and continuous learning for compliance professionals to effectively navigate the evolving regulatory landscape. Key compliance areas of focus for ASIC include mandatory climate reporting, greenwashing, and the responsible development and ethical use of AI.
Product issuers urged to review DDO compliance
ASIC has called on product issuers to review and improve their distribution practices to ensure compliance with the product design and distribution obligations (DDO). ASIC’s message followed its recent DDO compliance surveillance of 19 issuers of high-risk investment, insurance and credit products. The surveillance findings revealed:
· many issuers had limited due diligence arrangements in place to assess and monitor third party distributors;
· some high-risk product issuers rely on broad search terms in online marketing;
· many issuers used poor quality consumer questionnaires; and
· only a small number of issuers monitored consumer outcomes and product performance.
APRA seeks disqualification of First Super director and co-chair
APRA has commenced proceedings against First Super Pty Ltd (First Super) director and co-chair Michael O’Connor in the Federal Court, seeking civil penalties and his disqualification. Mr O’Connor was the National Secretary of the Manufacturing Division of the Construction Forestry and Maritime Employees Union (CFMEU). APRA’s action followed its investigation into a contract between First Super and CFMEU for member and employer services (MES Contract).
ARPA alleges that Mr O’Connor contravened a number of statutory director covenants by allegedly approving the appointment of a CFMEU employee to perform a full-time role under the MES Contract while being aware that First Super was paying fees under the MES Contract to cover the employee’s wages. In addition, APRA alleges that Mr O’Connor was involved in the negotiation of the MES Contract extension on behalf of the CFMEU despite being in a position of conflict.
Rent4Keeps found overcharging vulnerable consumers on essential goods
On 4 September 2024, the Federal Court found that Rent4Keeps Pty Ltd (Rent4Keeps) contravened the National Consumer Credit Protection Act 2009 (Cth) (Credit Act) under its business model of supplying everyday goods. From April to June 2019, Rent4Keeps’ largest franchise, Darranda Pty Ltd (Darranda) entered into 516 ‘lease’ agreements with customers for goods under which customers paid substantially more than they should have. These customers were often from low socioeconomic backgrounds, The Court found that the ‘lease’ agreements were credit contracts and that Darranda breached the 48 per cent annual rate cap and other requirements under the Credit Act. The Court also held that Darranda failed to act efficiently, honestly and fairly in its activities due to the deficiencies in its business, and that Rent4Keeps was knowingly involved in Darranda’s breaches.
Two interim stop orders on Candy Club
ASIC has issued two interim stop orders on Candy Club Holdings Limited (Candy Club). The first stop order was issued in relation to a public offer (Offer) made under a prospectus (Prospectus) lodged with ASIC in connection with the back door listing of Scalare Partners Pty Limited (Scalare). This stop order followed ASIC’s concern that the Prospectus failed to adequately disclose all required information under the Corporations Act, including information on Scalare’s proposed expansion to the United States and the valuation and performance of underlying investments in Candy Club’s portfolio on completion of the Offer. The second stop order was made in relation to ASIC’s concern that the target market determination (TMD) prepared by the Candy Club in connection with the Offer was deficient and failed to comply with the Corporations Act. The stop orders prevent Candy Club from offering or issuing securities under the Prospectus and from dealings in relation to the TMD.
ASIC’s proceedings against REST dismissed
The Federal Court has dismissed ASIC’s proceedings against Retail Employees Superannuation Pty Ltd (REST), trustee of the Retail Employees Superannuation Trust (Fund), for alleged false or misleading representations made in relation to the conditions on its members’ ability to transfer their superannuation out of the Fund between March 2015 and May 2018.
Urgent orders against offerors of investments in NDIS-compatible developments
ASIC has commenced urgent proceedings against David McWilliams and a number of his companies which offered investment opportunities for purpose-built property development schemes that were claimed to be compatible with the National Disability Insurance Scheme. ASIC has obtained orders freezing the assets of Mr McWilliams and his partner and restraining him from leaving Australia.
Proceedings against Sydney car dealership for alleged unlicensed lending
ASIC has commenced proceedings against Diamond Wheels Pty Limited (Diamond Wheels) and Keo Automotive Pty Ltd (Keo Automotive) for allegedly providing car loans to consumers without holding an Australian credit licence, resulting in many customers having paid interest that exceeded the lawful limit. ASIC also commenced actions against Ken Keomanivong, a director of Diamond Wheels and Keo Automotive, who was allegedly in charge of arranging and administering the unlicensed loans. ASIC is seeking declarations and civil penalties against the above entities for the alleged contraventions, as well as a ban on Mr Keomanivong from conducting credit activities.
Record fine against Macquarie Bank for serious market gatekeeper failure
The Markets Disciplinary Panel (MDP) has imposed a record fine of $4.995 million on Macquarie Bank Limited (Macquarie) for failing to prevent suspicious orders being placed on the electricity futures market. Between January and September 2022, Macquarie contravened market integrity rules on 50 occasions by allowing three clients to place orders within the last minute of market close, which impacted the daily settlement price in favour of the clients’ interest in the contract. The MDP found that Macquarie should have suspected that each of the 50 orders submitted were intended to create a false or misleading appearance in the market. An aggravating factor in the MDP’s penalty determination was Macquarie’s failure to respond to ASIC’s concerns about the volatility in energy markets or the suspicious trading of Macquarie’s clients. In addition, the MDP found Macquarie liable for failing to appreciate the seriousness of its obligations as a market participant to act promptly and appropriately upon obvious deficiencies in its surveillance system, and to take responsibility for its failure. The MDP also suggested systemic issues regarding the culture and reporting within Macquarie if its staff failed to escalate matters when they should have.
Vanguard handed $12.9 million penalty for greenwashing
On 25 September 2024, the Federal Court ordered Vanguard Investments Australia (Vanguard) to pay a penalty of $12.9 million for making misleading claims about environmental, social and governance exclusionary screens which were applicable to investments in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund. ASIC said that the penalty was the highest ever to be imposed for greenwashing conduct. The case was ASIC’s first greenwashing civil penalty action.