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Australia | Publication | May 2024
This article was co-authored with Steven Li, Liam Mackay and Mia Blundell.
Regulatory activity in the financial services sector picked up between February and April 2024. Notably, ASIC made an opening statement before the public inquiry into insurers’ responses to 2022 major floods claims. ASIC also granted a class no-action position letter regarding unfair contract terms for institutional markets and called on industry to increase oversight of choice super performance. On the other hand, APRA consulted on proposed changes to the operational risk financial requirement for superannuation and published updated FAQs on superannuation data and insurance. Significantly, ASIC and APRA released a joint letter on Financial Accountability Regime (FAR) commencement and implementation.
In March 2024, APRA focused its attention on the incoming FAR by releasing packages including information, guidance and final rules for accountable entities. While the rules and guidance focus on banks, the materials are relevant to insurers and superannuation providers as they prepare for the commencement of the FAR in March 2025. March also saw significant findings in actions brought by ASIC. Notable Federal Court proceedings saw a win for ASIC in the first greenwashing civil penalty action and a finding that a term in an insurance contract was not unfair, which ASIC has given notice to appeal.
March and April have also seen an increase in regulatory focus on climate-related disclosures. This came as entities prepare for the incoming Treasury Laws Amendment (Financial Markets Infrastructure and Other Measures) Bill 2024 which will mandate climate-related financial disclosures for entities reporting under the Corporations Act. Notably, ASIC released guidance on climate reporting and greenwashing for small entities not captured by the proposed legislation. Meanwhile, APRA has released a letter in advance of its voluntary climate risk self-assessment survey for APRA-regulated entities.
In February, AUSTRAC commenced a consultation on its draft guidance for businesses using outsourcing arrangements to help meet its AML/CTF obligations. Following the Financial Action Task Force’s update on high risk and increased monitoring jurisdictions, AUSTRAC published a reminder for reporting entities to update their risk assessments and compliance programs. In March, AUSTRAC commenced an investigation into bet365 following the completion of a statutory external audit. AUSTRAC also warned consumers and businesses of a fake website that is impersonating AUSTRAC. In April, AUSTRAC issued a statement reporting it had issued eight infringement notices for reporting failures under the AML/CTF Act.
On 2 February 2024, ASIC Commissioner, Alan Kirkland, issued his opening statement before the inquiry into insurers’ responses to 2022 major flood claims.
In his opening statement, Mr Kirkland discussed ASIC’s responses to findings from two of its major reports published in 2023, namely:
Mr Kirkland observed that in a context where severe weather events are expected to be more frequent and more severe, the overall response of the insurance industry to the 2022 floods was disappointing. He warned that the industry was on notice and ASIC expects action to be taken on all the issues that ASIC identified as weaknesses. Mr Kirkland further noted that ASIC will be monitoring the industry’s ongoing response and, if necessary, consider enforcement action.
The full media release can be accessed here.
On 5 February 2024, ASIC and APRA issued a joint letter to all authorised deposit-taking institutions (ADIs) and their authorised non-operating holding companies (NOHCs) about their Financial Accountability Regime (FAR) obligations, commencing 15 March 2004.
The regulators recognised that while the banking industry may require additional time to finalise their FAR compliance requirements in relation to submitting applications for registration of new accountable persons and complying with core or enhanced notification obligations, entities are expected to submit their registration applications and make relevant notifications no later than 30 June 2024.
ASIC and APRA also noted its intention to release the Regulator Rules, Transitional Rules and reporting form instructions, and provide further details in relation to APRA Connect FAR form availability and FAR entity profile submissions.
The letter can be accessed here. The full media release can be accessed here.
On 22 March 2024, the Federal Court in ASIC v Auto & General Insurance Company limited [2024] FCA 272 handed down the first decision to apply the unfair contract terms (UCT) regime in the context of insurance since its expansion to insurance policies on 5 April 2021.
On 4 April 2023, ASIC filed proceedings against Auto & General Insurance Company Ltd (Auto & General) in respect of a term within its standard form home and contents insurance policies. This term stated that customers must “tell us if anything changes while you’re insured with us” (the Notification Clause) (our emphasis) and was included within Product Disclosure Statements (PDSs) issued with approximately 1,377,900 contracts for home and contents insurance policies.
ASIC submitted the Notification Clause was unfair within the meaning of ss 12BF(1)(a) and 12BG(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) on the basis that it:
Jackman J held that the clause was not unfair as it did not create a significant imbalance between the parties and the term was reasonably necessary to protect the insurer’s interests. In making this finding, his Honour clarified that Auto & General’s rights to refuse payment or reduce a claim were qualified by the duty of utmost good faith per s 13 Insurance Contracts Act 1984 (Cth) (ICA) and, in any event, s 54 of the ICA would operate to ensure that these rights would not cause a significant imbalance between the parties’ rights and obligations.
ASIC has since appealed the Federal Court’s decision, maintaining that the term is unfair on the same grounds it alleged at first instance. In its notice of appeal, ASIC said that Jackman J erred in finding that the term is reasonably necessary to protect the parties’ interests and in not finding that it would cause a significant imbalance in the rights and obligations of the parties.
The full media release for the decision can be accessed here and the appeal here. The judgment can be accessed here. The case note can be accessed here. The notice of appeal can be accessed here.
On 6 February 2024, ASIC issued a final reminder to financial advisers (relevant providers) to register with ASIC before 16 February 2024 or cease providing personal advice to retail clients. Unregistered advisors who provide personal advice to retail clients, together with their Australian Financial Services (AFS) licensee(s), will be in breach of a restricted civil penalty provision and will have committed an offence.
ASIC also encouraged AFS licensees to apply to register their relevant providers now using ASIC Connect and ensure they understand the information contained in ASIC Information Sheets 276: Registration for relevant providers (INFO 276) and 277: Registration of relevant providers: Guidance on making declarations (INFO 277), in relation to the circumstances in which a relevant provider’s registration will cease.
The full media release can be accessed here.
On 6 February 2024, following the filing by the Australian Financial Markets Association (AFMA) of an urgent application for no-action relief in advance of the commencement of the UCT reforms on 9 November 2023, ASIC announced that it had granted a limited class no-action position for institutional markets.
AFMA cited concerns on behalf of industry that the UCT reforms would apply to certain sophisticated participants in financial markets who are not “consumers” or “small businesses” intended to be covered by the UCT regime.
On 2 February 2024, following consultation with AFMA, Treasury and industry participants, ASIC provided a limited class no-action letter (Letter), informing industry that it does not intend to take action for the following contraventions of the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act):
ASIC has made clear that the Letter does not prevent third parties, including the Director of Public Prosecutions, from taking legal action in relation to the conduct the subject of the Letter, nor will the Letter necessarily impede a court from holding that such conduct infringes the relevant provisions of the Corporations Act and, or, the ASIC Act.
The Letter can be accessed here. The full media release can be accessed here.
On 21 February 2024, ASIC called on super trustees, financial advisers, and financial advice licensees to increase focus on the performance of choice super investment options, which as of September 2023, accounted for over $1.1 trillion in superannuation savings held by Australians across 7.5 million member accounts.
The announcement follows the release of Report 779: Superannuation and choice products: What focus is there on performance? which examined the role of industry in influencing the investment options that make up member superannuation portfolios as part of a choice superannuation product. Report 779 found there was insufficient emphasis on and a lack of transparency about choice investment options that failed to meet performance expectations.
ASIC expects trustees to:
Report 779 can be accessed here. The full media release can be accessed here.
On 6 March 2024, ASIC issued a letter reminding general insurers of their obligations as Australian financial services (AFS) licensees to act efficiently, honestly, fairly and expeditiously when resolving claims. These responsibilities were emphasised in light of claims lodged to support Australians’ recovery from severe weather events in recent years.
The letter can be accessed here. The full media release can be accessed here.
On 8 March 2024, APRA and ASIC have released a package which includes:
The release of these materials follows a joint public consultation in July 2023.
This comes before the FAR entered into force for the banking industry on 15 March 2024 and for the superannuation and insurance industries on 15 March 2025.
The full media release can be accessed here.
On 14 March 2024, ASIC and APRA released an information package for accountable entities under the new FAR, established by the Financial Accountability Regime Act 2023 (Cth). The FAR imposes a strengthened responsibility and accountability framework to improve the risk governance cultures of APRA-regulated entities, their directors and most senior executives.
The information package consists of:
The package also includes a consultation package which comprises:
The consultation period ends 19 April 2024.
The full media release can be accessed here.
On 19 March 2024, ASIC released guidance on climate reporting obligations and greenwashing risks for small and medium Australian businesses. While those businesses will not be captured by the proposed mandatory climate-related disclosure laws coming into effect early next year, they ought to be aware of disclosure obligations as they form part of the supply chain for larger businesses required to report. ASIC proposes to work with these businesses to develop guidance on how these proposed reporting requirements may impact them.
The release also outlined when an entity may be liable for greenwashing-related conduct and drew attention to Information Sheet 271 to assist businesses to comply with relevant obligations.
The full article can be accessed here.
On 28 March 2024, the Federal Court held that Vanguard Investments Australia made misleading claims about certain environmental, social and governance (ESG) exclusionary screens applied to investments in one of its index funds. This finding followed Vanguard’s admission to engaging in such conduct at a hearing before Justice O’Bryan on 8 March 2024.
Vanguard’s representations included claims that the Index excluded only companies with significant business activities in a range of industries, including those involving fossil fuels. These were made in several public communications, which included:
The full media release can be accessed here. The judgment can be accessed here.
The five class orders which were due to expire (or ‘sunset’) on 1 April 2024 are:
The following legislative instruments will operate in place of these class orders:
The new instruments are based on feedback from the consultation process earlier this year. Each of the class orders have been remade in substantially the same form.
The full media release can be accessed here.
On 5 February 2024, APRA published updated frequently asked questions (FAQs) for both the Superannuation Data Transformation (SDT) project and the outcomes assessment under section 52(9) of the Superannuation Industry (Supervision) Act 1993 (Cth).
In relation to the SDT, the updates include four new FAQs and two updated worked examples, which provide guidance on reporting and clarify reporting issues raised by registrable superannuation entity (RSE) licensees.
In relation to outcomes assessment, the updates include six updated FAQs, which assist RSE licensees in undertaking the outcomes assessment
The full media release can be accessed here.
On 19 February 2024, APRA commenced consultation on proposed amendments to Prudential Standard SPS 114 Operational Risk Financial Requirement (SPS 114) and its associated guidance, Prudential Practice Guide SPG 114 Operational Risk Financial Requirement (SPG 114). The consultation follows responses to APRA’s November 2022 Discussion Paper on potential changes to operational risk financial requirements.
APRA proposes to amend SPS 114 and SPG 114 to:
APRA expects the proposed changes will better position RSE licensees to use the ORFR for its intended purpose: to manage the impact of disruption and smooth operational risk related losses fairly across different cohorts of beneficiaries.
The consultation letter and draft prudential standard and guidance can be accessed here. The full media release can be accessed here.
On 19 February 2024, APRA announced in a letter to industry that it was updating guidance for General Insurers to observe when reporting large exposures in GRS 117.0 Asset Concentration Risk Charge (GRS 117.0).
Insurers are required to submit details of large exposures on the reporting forms in certain free text fields. Due to the free text nature of these fields, different insurers used different terminology (e.g. Australian Government, Commonwealth Govt etc.) which limits the usefulness of this data for analytical purposes.
To address this issue, APRA has developed lists of standard wordings for certain text fields. APRA expects insurers to match the exact spelling specified by these lists where applicable and has reminded insurers to report the counterparty ACN or ABN when reporting large exposures, as required in the reporting standard.
The letter can be accessed here. The full media release can be accessed here.
On 3 April 2024, APRA released a letter to industry on the scope, purpose and timing of its 2024 voluntary climate risk self-assessment survey of APRA-regulated entities. The survey will be open to all APRA-regulated entities in the insurance, banking and superannuation sectors.
It aims to enhance APRA’s understanding of how entities are identifying, managing, and tackling the financial challenges posed by climate change. APRA’s CPG 229 Climate Change Financial Risks guidance will be used as a benchmark to assess the management of these risks.
The full media release can be accessed here. The letter can be accessed here.
On 26 February 2024, AUSTRAC began the public consultation process for its draft guidance for businesses using outsourcing arrangements to help meet their AML/CTF obligations. The guidance is designed to help businesses:
Reporting entities and businesses providing AML/CTF services, such as consultants and regulatory technology businesses, were encouraged to make a submission before the deadline on 18 March 2024.
The full media release can be accessed here.
On 29 February 2024, AUSTRAC reminded entities to maintain awareness of countries that pose a higher risk of money laundering or terrorism financing. AUSTRAC referred to the Financial Action Task Force’s (FATF) recently updated list of High-Risk Jurisdictions and Jurisdictions under Increased Monitoring.
The full media release can be accessed here.
On 7 March 2024, AUSTRAC commenced an enforcement investigation into Hillside (Australia New Media) Pty Limited (bet365).
The investigation will focus on whether bet365 has complied with its obligations under the AML/CTF Act in light of the external audit report AUSTRAC received.
The full media release can be accessed here.
On 25 March 2024, AUSTRAC released a statement to warn consumers and businesses of a fake AUSTRAC website with AUSTRAC logo and branding.
The full media release can be accessed here.
On 18 April 2024, AUSTRAC released a statement reporting it had issued eight infringement notices related to failures to report the 2022 annual compliance report as required by the AML/CTF Act.
The infringement notices were issued to businesses and sole traders across a wide range of industries and penalties ranged from $3,300 for sole traders and $16,500 for companies for each contravention.
The statement reaffirms that AUSTRAC will continue to monitor compliance with reporting obligations and will not hesitate to take appropriate enforcement action where necessary.
The full media release can be accessed here.
On 12 March 2024, the Australian Government opened consultation on the effectiveness of the draft legislation to regulate the Buy Now, Pay Later (BNPL) products in Australia. The public consultation closed on 9 April 2024.
The package comprised a draft bill accompanied by an explanatory memorandum in addition to draft regulations accompanied by an explanatory statement. The proposed legislation will amend the National Consumer Credit Protection Act 2009 and the National Consumer Credit Protection Regulations 2010 to bring BNPL into line with other types of credit. This will require BNPL providers to hold an Australian credit licence and comply with existing requirements under the Credit Act.
The proposed reforms aim to ensure that Australians can enjoy the benefits of BNPL while receiving appropriate protections.
The media release can be accessed here. The exposure draft bill can be accessed here. The explanatory memorandum can be accessed here.
On 27 March 2024, the Treasury Laws Amendment (Financial Markets Infrastructure and Other Measures) Bill 2024 was introduced into Parliament. Schedule 4 to the proposed legislation will establish an internationally-aligned mandatory climate reporting regime in Australia. It follows the International Sustainability Standards Board (ISSB) issued its sustainability disclosure standards (IFRS S1 & S2) on 26 June 2023.
The proposed disclosure requirements will apply to entities that lodge financial reports under Chapter 2M of the Corporations Act and that meet the prescribed size thresholds. These entities will be required to disclose an annual sustainability report for the financial year consisting of a climate statement and a directors declaration about the statements and notes. These requirements will be implemented via a phased approach based on the size of the entity, commencing on 1 January 2025.
The bill can be accessed here. The explanatory memorandum can be accessed here.
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