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Keeping your dawn raid guidance current
Unannounced inspections or ‘dawn raids’ are used by antitrust authorities to obtain evidence when there are suspicions that individuals or businesses have infringed the antitrust rules.
Australia | Publication | September 2022
This article was co-authored with Marc Kopelowitz and Elvin Zhang.
The month of August saw a broad array of regulatory updates from ASIC and APRA. Notably, ASIC announced an extension of the transitional relief for foreign financial services providers from the requirement to hold an Australian Financial Services licence. August also saw ASIC release its corporate plan illustrating its strategic priorities for the next four years and highlighting the core strategic projects supporting these priorities. ASIC also identified room for improvement with life insurance claims handling after reviewing 4800 individual disability income insurance claims.
Also in August, APRA released the 2022 MySuper performance test results, in which APRA assessed 69 MySuper products against an objective benchmark which measures these products’ investment performance as well as their fees and costs. APRA also released its statistics on superannuation, life, and general insurance for the June 2022 Quarter and its findings from the climate-risk self-assessment survey. Additionally, in August the Financial Regulator Assessment Authority’s report Effectiveness and Capability Review of the Australian Securities and Investments Commission (ASIC), was released. The review found that ASIC is generally capable and effective in the areas reviewed and made four recommendations for implementation by ASIC.
ASIC announced it is extending to 31 March 2024 the transitional relief for foreign financial services providers (FFSPs) from the requirement to hold an Australian financial service licence (AFSL). These transitional arrangements for the sufficient equivalence relief and limited connection relief were due to expire on 31 March 2023.
The relief instrument also delayed commencement of the ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199 until 1 April 2024, which is expected to provide licensing relief to some FFSPs that provide fund management services to Australian professional investors.
ASIC clarified that it will consider new applications for individual temporary licensing relief, or new standard or foreign AFSL applications, from entities that cannot rely on the transitional relief. It also clarified that FFSPs who have been issued a foreign Australian Financial Services licence can continue to operate their business in Australia in reliance on that licence.
For more information on the announcement, see here. The relevant transitional relief instrument can be accessed here.
On 3 August 2022, ASIC published new guidance about the Financial Services and Credit Panel (FCSP). The guidance includes an update to RG 263 on the Financial Services and Credit Panel, and a release of a new information sheet titled ‘FSCP decisions: Your rights’.
The update to RG 263 takes into account submissions in response to a consultation paper titled ‘CP 356 Update to RG 263 Financial Services and Credit Panel’ released on 28 February 2022. The new information sheet aims to outline rights of financial advisers affected by a FCSP decision. These include application requirements to vary or revoke a FSCP decision, and details in seeking an independent review of a FSCP decision.
Along with the new guidance, ASIC also published Report 734 - the Response to Submission on CP 359 Update to RG 263 Financial Services and Credit Panel which featured key issues arising out of those submissions and ASIC’s responses.
More information on the announcement can be accessed here.
ASIC stated that it gathered and analysed data on the status and timeliness of complaints handling from 35 trustees of 38 funds. After the first stage of its surveillance, ASIC found indications of compliance issues and urged superannuation trustees to review their internal dispute resolution (IDR) arrangements.
The main observations were:
ASIC also announced it will examine how trustees were addressing these concerns and will examine a smaller sub-set of trustees at the next stage. It will also consider regulatory action where appropriate and communicate the outcomes of the surveillance once it is completed.
Further information on the announcement can be accessed here. A snapshot of complaints handling by superannuation trustees can be found here.
ASIC is urging superannuation trustees to review, and where required, improve the effectiveness of the target market determinations (TMD) for their products. A TMD is a mandatory public document that outlines the class of consumers for whom a financial product is likely to be appropriate. ASIC Commissioner Danielle Press said that while some of the TMDs that ASIC observed may be part of a well-designed and comprehensive governance program, there were some that lacked specificity. ASIC also raised questions about the underlying arrangements that superannuation trustees have in place to ensure their products reach the right consumers.
ASIC’s statement can be accessed here.
ASIC announced that it will focus on improving the operation of the reportable situations regime, which commenced on 1 October 2021. The lodgement of reports by licensees under the regime is a critical source of intelligence for ASIC to identify emerging trends of non-compliance in the industry and also allows detection of significant non-compliance early and allows ASIC to take the appropriate regulatory action promptly.
ASIC also announced that it will continue to engage with the industry on the adopted reporting practices to understand any issues faced, and communicate clear expectations for compliance with the new regime. Additionally, ASIC will provide design solutions to ensure consistency and quality of reporting, and engage with Treasury on whether the regime is meeting its policy objectives.
ASIC’s first public report on information provided under the regime is due to be published in October 2022, and will include high level insights into trends observed during the reporting period.
Further information on this announcement can be accessed here. More information on the Reportable Situations Regime can be accessed here.
ASIC published its research on retail investors’ investment behaviour. The report captures retail investors’ motivations, attitudes and behaviours in the period following the start of the COVD-19 pandemic.
Broadly, the report found that retail market activity remained elevated in 2022 compared to pre-pandemic levels. It also found that COVID-19 fuelled changes to the types of product being traded. Additionally, the research confirmed the prominence of digital and social channels as sources of information for investors and diversity in trading platforms used, indicating that a significant number of investors held cryptocurrencies as their only investment.
Further information on the announcement can be accessed here. The report of retail investor research can be accessed here.
ASIC has released its corporate plan, highlighting its strategic priorities for the next four years and outlined its plan of action for the year ahead.
ASIC’s four external strategic priorities, which are targeted towards the most significant threats in their regulatory environment are as follows:
To deliver on these external strategic priorities, ASIC will undertake eight core strategic projects outlined in its strategic plan:
Further information on the announcement can be accessed here. The ASIC Corporate Plan for 2022 to 2026 can be accessed here.
ASIC issued relief to insurers and brokers clarifying their obligations when offering retail insurance as part of their bundled business insurance contracts.
ASIC Corporations (Incidental Retail cover) Instrument 2022/716 exempts insurers and brokers from particular retail client obligations in Chapter 7 of the Corporations Act 2001 for ‘incidental retail cover’ provided in business insurance contracts. Incidental retail cover refers to retail insurance cover provided to a business that forms a minor, incidental and inseparable part of an otherwise wholesale insurance product.
This relief took effect on the 16 August 2022 and will expire in three years. ASIC will review the operation of this instrument before its expiry.
Further information on the announcement can be accessed here. The ASIC Corporations (Incidental Retail cover) Instrument 2022/716 can be accessed here.
Certain financial institutions have paid or offered a total of $3.6 billion in compensation, as at 30 June 2022, to customers who suffered loss or detriment because of fees for no service misconduct or non-compliant advice. This amount includes the $438 million paid or offered between 1 January and 30 June 2022.
The financial institutions undertook remediation programs to compensate affected customers as a result of two major ASIC reviews. ASIC commenced these reviews to examine the extent of the failure of these institutions to deliver ongoing advice services to financial advice customers who were paying fees to receive those services, and how effectively those institutions supervised their financial advisers to identify and deal with ‘non-compliant advice’.
Further information on the announcement can be accessed here.
After reviewing nearly 4800 individual disability income insurance claims, ASIC found that more has be done by insurers to ensure that consumers are sufficiently protected from harm resulting from poor claims handling practices. This review was done following its 2019 report and its follow up report in 2021 which reviewed consumer outcomes, claims handling practices and the role of data in managing consumer harm in TPD insurance claims. These reports identified concerns about the over-use of intrusive claims handling practices such as non-disclosure investigations and physical surveillance.
ASIC found that several insurers appeared to be ‘fishing’ for non-disclosures to avoid paying out legitimate claims. ASIC stated that it will take action against insurers if it finds any poor claims handling practices that results in consumer harm. ASIC also reiterated that insurers must have reasonable grounds to undertake investigations for non-disclosure especially in mental health claims and physical surveillance should only be used as a last resort.
ASIC will continue its review with those life insurers that had a higher proportion of potentially unwarranted investigations identified for review.
ASIC’s full announcement can be accessed here.
The Financial Regulator Assessment Authority (FRAA) released its report on the Effectiveness and Capability Review of the Australian Securities and Investments Commission. The FRAA’s review looked at ASIC’s strategic prioritisation, planning and decision making, surveillance and licensing, as well as ASIC’s utilisation of data and technology in these areas.
The review found that ASIC is generally capable and effective in the areas reviewed, although there are important opportunities to enhance its performance. The review made the following recommendations for ASIC to:
ASIC’s statement can be accessed here. The FRAA’s report can be accessed here.
APRA has released its Quarterly Insurance Performance Statistics publication for the June 2022 quarter. The statistics provide industry aggregate summaries of financial performance, financial position, capital adequacy and key ratios.
For the year ended 30 June 2022, the industry reported a net profit after tax of $0.5 billion and a return on net assets of 1.9%, which reflected a decrease compared to the prior year results. Risk products collectively returned an improved result for the year ended 30 June 2022, recording a profit of $1.2 billion compared to the prior year’s loss of $18 million.
APRA’s full announcement can be accessed here.
APRA announced that it has finalised its amendments to the general insurance reporting framework and released its final reporting standards for general insurers. The new standards will support the operation of the Government’s cyclone and related flood damage reinsurance pool operated by the Australian Reinsurance Pool Corporation.
APRA’s announcement can be accessed here.
APRA has released the results of the 2022 MySuper performance test. The annual performance test was introduced in 2021 to protect members from poor outcomes and hold superannuation trustees accountable for the implementation of their investment strategy. Sixty nine MySuper products with at least five years of performance history were assessed against an objective standard which measures its investment performance, and applicable fees and costs.
APRA’s statement can be accessed here.
On 1 August 2022, APRA announced a proposal to implement a number of changes to update its prudential standard, SPS 515 Strategic Planning and Member Outcomes (SPS 515), which governs strategic planning and member outcomes in superannuation, requiring trustees to evaluate their performance in producing quality member outcomes.
APRA noted that despite SPS 515 only having come into effect at the beginning of 2020, the speed of change in the industry and its regulatory and legislative settings, as well as APRA’s observations of the standard’s operation, have prompted APRA to revisit its design.
On the same day, APRA also released a discussion paper, ‘Strategic planning and member outcomes: Proposed enhancements’, outlining their main proposals, which include:
APRA’s announcement can be accessed here. A full copy of the discussion paper can be found here.
APRA has released the findings of its latest climate risk self-assessment survey conducted across the banking, insurance and superannuation industries.
The survey was voluntary and designed to reveal how entities regulated by APRA are orienting their activities with the expectations found in Prudential Practice Guide CPG 229 Climate Change Financial Risks (CPG 229). CPG 229 was released last November and provides guidance to APRA regulated entities on how they can manage financial risks and opportunities that might flow from climate change.
Responses from 64 medium to large institutions reflect a general alignment to APRA guidance, particularly in the areas of governance and disclosure. However, only a small proportion of survey participants indicated that they have fully embedded climate risk across their risk management framework.
Other main observations from the entities’ survey responses include:
APRA’s announcement can be accessed here. A full copy of the survey findings can be found here.
On 23 August 2022, APRA published their Quarterly Superannuation Performance statistics for the June 2022 quarter.
Key figures include:
APRA’s announcement can be accessed here. A full copy of the superannuation statistics for the June 2022 quarter can be found here.
On 25 August 2022, APRA published their Quarterly General Insurance Performance Statistics and Quarterly General Institution-level Statistics for the June 2022 quarter.
Key figures include:
APRA’s announcement can be accessed here. A full copy of the general insurance statistics for the June 2022 quarter can be found here.
Publication
Unannounced inspections or ‘dawn raids’ are used by antitrust authorities to obtain evidence when there are suspicions that individuals or businesses have infringed the antitrust rules.
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