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Australia | Publication | July 2024
This article was co-author with Liam Mackay, Mia Blundell and Marc Kopelowitz.
The months of May and June saw several significant developments in the financial services regulatory landscape. Notably, ASIC focused its attention on ESG-related concerns, with Chair Joe Longo delivering a speech urging entities to avoid conduct that may amount to greenwashing. This was timely considering the impending commencement of the proposed mandatory climate-related disclosure regime, where ASIC expressed its intention to take a pragmatic approach to the supervision and enforcement of the regime.
On the other hand, APRA focused its attention on the implementation of the new private health insurance capital framework, and also issued its finalised CPG 230, a prudential practice guide to assist banks, insurers and superannuation trustees improve their management of operational risk and enhance business continuity planning. In June, APRA issued its new digital ‘Prudential Handbook’ which brings its prudential standards, guidance and other supporting information into one place. It also finalised its consultation on amendments to the superannuation prudential framework for audit.
The month of June saw significant updates to ASIC’s regulatory focus on greenwashing. Namely, the Federal Court handed down judgment in favour of ASIC in its greenwashing action against superannuation fund Active Super, while Fertoz Limited paid two ASIC infringement notices for false and misleading statements about its reforestation project in the Philippines which amounted to greenwashing.
Meanwhile, AUSTRAC accepted an Enforceable Undertaking from a sports-betting entity to uplift its compliance with the anti-money laundering and counter-terrorism financing (AML/CTF) obligations. It also agreed on a penalty for a casino for alleged breaches of the AML/CTF regime, which was accepted by the Federal Court of Australia in June. The second round of consultation for the reforms to the AML/CTF regime also ran from May until June. The reforms propose extending AML/CTF obligations to Tranche 2 entities and simplify and modernise the regime.
AUSTRAC also met with the Financial Intelligence Consultative Group in May to discuss financial crime and safety in the ASEAN region. In June, AUSTRAC released a new financial crime guide related to combatting the use of foreign students as money mules. Other AUSTRAC announcements include a statement from the new CEO Brendan Thomas, who also attended the ACAMS Conference in June, an update from the RegTech Symposium, tips for cyber safety, and the importance of entities submitting suspicious matter reports.
On 1 May 2024, ASIC stated that it was undertaking a multi-year review of industry practices and compliance with laws relating to member services.
Between 2021 and 2023, there was a sharp increase in the number of death benefits complaints to the Australian Financial Complaints Authority (AFCA). Growth in complaints about service-related issues doubled over this period, but complaints about delays in death benefit claims handling saw a disproportionate increase, rising from 2.5% of service-related complaints to AFCA in 2021 to 8.5% of service-related complaints in 2023.
The first phase of ASIC’s death benefit claims work was focussed on public website communications and resources about death benefit nominations and how to make a death benefit claim.
Key findings from the first phase of ASIC’s review included:
ASIC is calling on trustees to urgently consider whether their arrangements for dealing with death benefit claims are fit for purpose.
The full media release can be accessed here.
On 2 May 2024, ASIC Chair Joe Longo gave a keynote speech on greenwashing at the RIAA Conference Australia. Mr Longo stated that ASIC considers greenwashing to be “the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical” which is consistent with market’s understanding of the greenwashing.
The ASIC Chair noted that “good quality, reliable information is essential to market integrity, and to confident and informed decision-making by investors. And so when companies make misleading statements about ESG issues, it erodes trust in the market – and can lead to the misallocation of capital. Combating greenwashing is therefore critical to supporting trust. And ASIC’s role is to help shore up that trust, by finding the right balance between guidance, surveillance and enforcement.”
Mr Longo illustrated that the main types of conduct which have caused ASIC to hand down penalties in relation to greenwashing include:
The Chair also appealed to companies to start preparing to comply with the new climate reporting regime by stating that “it’s simply not an option for industry to put off preparations, and then scramble to comply. Reporting entitles have to be doing the work now – marshalling the data, embedding the capabilities, and keeping the necessary records.”
The full speech can be viewed here.
On 3 May 2024, the Federal Court found that BPS Financial Pty Ltd (BPS) engaged in unlicensed conduct and misleading or deceptive conduct and made false or misleading representations when offering the ‘Qoin Wallet’, a non-cash payment facility which used a crypto-asset token called ‘Qoin.’
In delivering judgment for proceedings brought by ASIC, Justice Downes found that BPS contravened the Corporations Act 2001 (Cth) (Corporations Act) as it did not hold an Australian financial services licence, nor was it authorised by a licence holder, to issue or provide financial advice about the Qoin Wallet.
ASIC Chair Joe Longo remarked “Crypto assets are highly volatile, inherently risky, and complex. This makes it critically important that providers have the appropriate licences and authorisations, and that investors are provided with clear and accurate information. This case is an important reminder that many crypto products are financial products and that providers need to hold a licence… Entities should not be making claims about features, or the regulatory status of their offerings, that are false or misleading”.
The full media release can be viewed here. The full judgement can be viewed here.
On 6 May 2024, ASIC released a consultation paper on proposed updates to Regulatory Guide 236: Do I need an AFS licence to participate in carbon markets? for participants in the carbon market in relation to Australian financial services licensing requirements.
The proposed updates address the implications of the safeguard mechanism reforms to the financial services and markets section of the Corporations Act, as well as changes in the regulatory landscape for carbon markets, particularly Australian Carbon Credit Units.
ASIC will also update INFO 156 Regulated emissions units: Applying for or varying an AFS licence when the updated RG 236 is published. ASIC expect to publish this in the second half of 2024.
The full media release can be viewed here. The consultation paper can be viewed here.
On 7 May 2024, ASIC announced it had conducted a review of cold calling for superannuation switching business models, amid evidence of adverse consumer outcomes arising from unsuitable financial advice.
ASIC observed considerable volumes of superannuation fund movement as a result of cold calling conduct, including inflow into platforms, high-risk property investments and significant payments to cold calling operators.
ASIC is concerned that some high-pressure, cold calling for superannuation switching business models are providing unnecessary and inappropriate advice leading to poor outcomes for clients. These negative outcomes range from superannuation erosion due to high fees and charges, to a possible reduction in superannuation savings due to inappropriate investment in high-risk and/or low-quality superannuation investment options.
ASIC is also concerned about the fragmented nature of some cold calling business models, particularly deliberate attempts to avoid legal liability or present the illusion of independence to consumers. ASIC’s analysis indicates that some business models may be engaging in misleading and deceptive conduct.
ASIC urged superannuation trustees to review their processes to ensure they are not benefiting at the expense of people who become their members. ASIC states that trustees should have processes in place to identify practices that may be resulting in superannuation balance erosion, including from inappropriate advice fee charges.
The full article can be viewed here. The full media release can be reviewed here.
On 9 May 2024, ASIC called on superannuation trustees to renew efforts to protect members from unscrupulous operators amid evidence of inadequate oversight of advice fee deductions.
A newly published ASIC report (REP 781 Review of superannuation trustee practices: Protecting members from harmful advice charges) outlined key findings from a review of the progress superannuation trustees had made in addressing deficiencies in their monitoring of fee deductions for the provision of financial advice.
The review found that these deficiencies — brought to light through ‘fees for no services’ cases heard by the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry — continued to pose risks and cause detriment to members.
ASIC urged superannuation trustees to reassess their oversight processes and consider the following steps to strengthen member protections:
The full media release can be viewed here.
On 15 May 2024, ASIC issued Information Sheet 282 Unsolicited contact leading to financial advice (INFO 282), which outlines how financial services laws apply to unlicenced entities referring consumers to a third party for the provision of financial advice.
These entities must comply with financial services laws to avoid substantial penalties.
INFO 282 is also relevant to Australian financial services (AFS) licensees and financial advisers that receive consumer details obtained through unsolicited contact.
The publication sets out requirements under the law, when making unsolicited contact, and when making digital contact.
The full media release can be viewed here.
On 15 May 2024, ASIC outlined an expanded program of work to enhance the integrity and quality of financial reporting and auditing in Australia in achieving the broader goal of confident and informed investors. The announcement included ASIC’s focus areas for 30 June 2024.
The announcement reiterated that for the first time, superannuation trustees are required to lodge audited financial reports for most superannuation funds with ASIC. Trustees will need to lodge within three months of the end of the fund’s 2023-24 financial year.
ASIC reminded trustees that these reports must be lodged by the due date and in compliance with the relevant accounting standards and that superannuation funds will be included ASIC’s financial reporting and audit surveillance program.
The full media release can be viewed here.
On 22 May 2024, ASIC released Information Sheet 281 FAQS: Relevant providers – Accessing the experienced provider pathway (INFO 281) to provide guidance to financial advisers and AFS licensees about the experienced provider pathway following changes to the law made by the Treasury Laws Amendment (2023 Measures No. 3) Act 2023.
Since 1 January 2019, professional standards have applied to financial advisers. This includes the qualifications standard and the professional year standard.
The experienced provider pathway enables financial advisers to be deemed as having met the qualifications and professional year standards without needing to undertake further education and training if they have:
The full media release can be viewed here.
On 22 May 2024, ASIC Commissioner Alan Kirkland gave a speech at the Australian Finance Industry Association Risk Summit 2024.
Mr Kirkland stated that ASIC will take a pragmatic approach to the supervision and enforcement of the government’s proposed mandatory climate-related disclosure regime when it comes into effect and that the regulator will develop guidance to help entities meet their obligations. The Commissioner also noted that whilst the direct reporting requirements are intended to apply only to large businesses and financial institutions, some small and medium sized businesses may need to engage with climate reporting considerations as a supplier to these large companies.
Mr Kirkland also highlighted ASIC’s focus on addressing greenwashing in relation to superannuation and investment products. He outlined ASIC’s recent action in this area as well as more than 60 corrective disclosure outcomes, 17 infringement notices and a number of further inquiries and investigations underway.
The full speech can be viewed here.
On 5 June 2024, the Federal Court handed down a decision which found that LGSS Pty Limited (as trustee of the superannuation fund Active Super) (Active Super), had breached the law by making several misleading representations concerning its environmental, social and governance (ESG) credentials.
ASIC alleged that Active Super’s had claimed in its marketing that it no longer made or had reduced certain Russian investments as they posed too great a risk to the environment and the community, including gambling, coal mining and oil tar sands. However, the Federal Court found that from 1 February 2021 to 30 June 2023, Active Super invested in various securities directly and indirectly that it had claimed were eliminated or restricted by ESG investment screens.
The Federal Court also found that Active Super published representations that were misleading and deceptive in relation to exclusions applied to gambling, coal mining, Russian entities and oil tar sands investments on its website, reports and disclosure.
This matter has been listed for a further hearing where the Federal Court will consider the appropriate form of declaratory relief. The court will also consider the pecuniary penalty to be imposed at a later date.
The full media release can be viewed here. The judgement can be viewed here.
On 14 June 2024, ASIC issued a class no-action position in response to approaches by industry participants about whether second party opinion (SPO) providers may be providing financial product advice that requires them to hold an AFS licence. This no-action position was issued because:
An SPO means an opinion, statement or report on the alignment or contribution of a financing instrument, program, or framework of an entity to industry-accepted environmental sustainability-based principles, as prepared by a person who is independent of the commissioning party.
ASIC does not intend to take action for a contravention of the requirement to hold an AFS licence under section 911A(1) Corporations Act in relation to providing an SPO in connection with an offer to wholesale clients that involve the provision of financial product advice.
The class no-action position sets minimum regulatory expectations for SPO providers which include:
The class no-action will apply until the end of 15 June 2026 unless revoked or modified.
The full media release can be viewed here. The ASIC class no-action letter can be viewed here. The regulatory guide relating to no-action letters can be viewed here.
On 18 June 2024, ASIC Commissioner Alan Kirkland addressed financial advice licensees at the Professional Planner Licensee Summit regarding ASIC’s priorities and current work in the area of financial advice.
Mr Kirkland outlined that ASIC’s current enforcement priorities include:
In relation to the reportable situations regime, Mr Kirkland stated that ASIC will take the appropriate action including enforcement action where it finds evidence of non-compliance.
The full media release can be viewed here.
On 26 June 2024, ASIC issued a reminder to AFS licensees regarding the upcoming notification obligations relating to the experienced provider pathway. Since 1 July 2024, AFS licensees were required to notify ASIC when they receive a written declaration from a financial advisor eligible for the experienced provider pathway. The pathway is an alternative way for financial advisers to satisfy the qualifications standard and the professional year standard by making a written declaration.
Financial advisers who make a written declaration must provide a copy to their AFS licensee(s) as soon as practicable. AFS licensees will then have 30 business days to notify ASIC from the day they receive a written declaration.
ASIC also provided guidance in Information Sheet 281 FAQs: Relevant providers – Accessing the experienced provider pathway on how AFS licensees can assure themselves that a financial adviser who has given them a copy of a written declaration is entitled to access the pathway.
The full media release can be viewed here.
ASIC is calling on market intermediaries to strengthen their supervisory arrangements for recording and monitoring representatives’ business communications to prevent, detect and promptly address misconduct and contraventions of financial services laws.
On 26 June 2024, ASIC issued Information Sheet 283 Supervising your representatives’ business communications (INFO 283) in response to concerns that the use of unmonitored communication channels and encrypted communication applications in business communications can significantly increase the risk of misconduct going undetected.
The Information Sheet provides practical guidance to market intermediaries on managing these risks, embedding supervisory arrangements for business communications, and reviewing their effectiveness in compliance with the requirements under the Corporations Act and ASIC market integrity rules.
The Information Sheet also covers common challenges and pitfalls for market intermediaries in effectively supervising their representatives’ business communications, including:
The full media release can be viewed here.
On 9 May 2024, APRA issued a letter to private health insurers (PHIs) which shares its observations from a number of its Internal Capital Adequacy Assessment Process Summary Statements. It also shared feedback on the implementation of its new PHI capital reporting framework which commenced for PHIs from 1 July 2023 and seeks to bring PHIs into line with other insurance industries.
The full media release can be accessed here. The letter can be accessed here.
On 7 June 2024, APRA published a set of new and updated frequently asked questions (FAQs) to provide further guidance on the administration of the Government’s Your Future, Your Super Performance Test.
The new FAQs issued provide clarification on the following topics regarding the 2024 Performance Test:
The full media release can be viewed here. The FAQs can be viewed here.
On 13 June 2024, APRA issued its finalised prudential practice guide to assist banks, insurers and superannuation trustees improve their management of operational risk and enhance business continuity planning.
The new Prudential Practice Guide CPG 230 Operational Risk Management (CPG 230) is designed to assist in the implementation of Prudential Standard CPS 230 Operational Risk Management (CPS 230), which was finalised in July last year and takes effect from 1 July 2025. The key changes within CPG 230 include:
The full media release can be viewed here.
On 18 June 2024, APRA finalised its consultation on minor and consequential amendments to the superannuation prudential framework for audit. In its letter, APRA sets out its response to feedback from the consultation and issues final versions of the relevant prudential standards and guidance. The letter addresses the scope of reasonable assurance audit requirements and the retirement of the SPG 310 guidance and it additionally summarises the additional minor and consequential amendments to APRA’s prudential framework.
The full media release can be viewed here.
On 19 June 2024, APRA issued a letter to RSE licensees outlining key observations from the SPS 530 Valuation Governance Framework Self-Assessment Survey. This survey was conducted by APRA in late 2023 on unlisted asset governance practices to assess the implementation of the enhanced requirements contained in Prudential Standard SPS 530 Investment Governance and related guidance.
In the letter, APRA noted that better practices that were observed across the majority of RSE Licensees included:
However, APRA also noted some key areas where there is room for improvement including:
The full media release can be viewed here.
On 19 June 2024, APRA announced the released of its new digital prudential framework in the form of the ‘Prudential Handbook’. This presents all APRA’s prudential standards, guidance and supporting information in a digital format which can be easily navigated and searched by users across a range of different regulated industries and the broader communities. It is part of APRA’s strategic initiative to modernise the prudential architecture by making the prudential framework simpler, clearer, and more adaptable.
The full media release can be viewed here. The letter can be viewed here.
On 11 June 2024, Treasury announced the commencement of a public consultation on the Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024 (the DBFO Regulations). The DBFO Regulations support the implementation of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024 (the DBFO Act) which received royal assent on 9 July 2024.
Together, the DBFO Act and DBFO Regulations represent the first tranche of the Government’s response to recommendations of the Quality of Advice Review (QAR) that was provided to the Government on 16 December 2022. The QAR recommendations sought to better enable the provision of high quality, accessible and affordable financial advice to retail clients.
The DBFO Regulations:
The full media release can be accessed here. The exposure draft of the DBFO Regulations can be accessed here.
On 2 May 2024, AUSTRAC announced that the second stage of consultation from the Commonwealth Attorney-General’s Department is open. The consultation aims to reform Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime.
The proposed reforms intend to extend existing obligations to “Tranche 2” entities, which include lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones. The reforms also aim to simplify and modernise the regime in line with international standards and best practice and reduce complexity and regulatory burden.
Submissions closed on 13 June 2024.
The full media release can be accessed here. The submission page can be accessed here.
On 2 May 2024, AUSTRAC provided tips on protecting yourself online and remaining vigilant to avoid fake websites and possible scams. The announcement comes after several fake AUSTRAC websites were identified and shut down.
Their top five tips are:
The full media release can be accessed here.
On 2 May 2024, AUSTRAC released a case study that highlights the importance of submitting a suspicious matter report (SMR).
SMRs help AUSTRAC provide actionable intelligence to law enforcement partners to disrupt serious crime, including child sexual exploitation.
The full media release can be accessed here.
On 2 May 2024, new AUSTRAC CEO released a statement.
Mr Thomas stated: “At AUSTRAC we do sometimes take very strong action. Not doing so allows weaknesses in our systems to be exploited by those wishing to profit by doing harm. So we will continue to take that action. We will also continue to work in partnership with industry, together preventing the profits of organised crime.”
The full media release can be accessed here.
Mr Thomas has more recently spoken at the ACAMS Conference on 19 June 2024. At this conference, he discussed the importance of AUSTRAC’s work and the objectives of the proposed reforms to the AML/CTF regime.
The speaking notes can be accessed here.
On 8 May 2024, AUSTRAC released a summary of the RegTech Symposium, held on 7 May 2024 in Melbourne.
Co-hosted by AUSTRAC and the RegTech Association, attendees came together to hear how RegTechs can help businesses comply with their AML/CTF obligations. Topics included the importance of transaction monitoring programs and quality reporting.
The full media release can be accessed here. The RegTech page can be accessed here.
On 17 May 2024, AUSTRAC announced that they and SkyCity Adelaide Pty Ltd (SkyCity) have filed joint submissions in the Federal Court of Australia, proposing a $67 million penalty over the casino’s contravention of the AML/CTF Act.
SkyCity admitted that its AML/CTF Programs did not meet the requirements of the AML/CTF Act and Rules, in contravention of section 81 and did not carry out appropriate ongoing customer due diligence, in contravention of section 36.
The full media release can be accessed here.
On 7 June 2024, the Federal Court of Australia accepted those submissions and ordered SkyCity to pay the $67 million penalty, as well as AUSTRAC’s costs of $3 million.
The full media release for that announcement can be accessed here.
On 30 May 2024, AUSTRAC announced that it had accepted an Enforceable Undertaking from Sportsbet Pty Ltd (Sportsbet) to uplift its compliance with the AML/CTF Act and Rules.
The Enforceable Undertaking comes after AUSTRAC ordered Sportsbet to appoint an external auditor on 3 November 2022. Following careful consideration of the auditor’s findings, and Sportsbet’s willingness to cooperate and proactively work to meet its obligations, AUSTRAC has determined accepting an Enforceable Undertaking from Sportsbet is the most appropriate regulatory response.
The full media release can be accessed here.
On 30 May 2024, AUSTRAC announced that it had wrapped up a meeting with its ASEAN counterparts in Melbourne.
The Financial Intelligence Consultative Group (FICG) is a group of Australasian and ASEAN financial intelligence units. Established by AUSTRAC and its Indonesian counterpart in 2016, it collaborates and shares actionable intelligence, which contributes to the safety and security of the financial systems in our region.
The FICG’s 2024 Plenary in Melbourne included representatives from Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Philippines, Singapore, Thailand and Vietnam. The head of the Cook Islands FIU and representatives from the Japanese FIU also attended as observers.
The full media release can be accessed here.
On 4 June 2024, AUSTRAC released a new financial crime guide to help businesses identify and report suspicious activity related to criminal networks targeting vulnerable international students and temporary residents as money mules.
Criminal networks are known to target international students and other temporary residents as money mules, offering them a way to make money while living in Australia. Some money mules are unaware this activity is illegal, often believing their facilitation of fund transfers constitutes legitimate employment.
The guide was developed by the Fintel Alliance, led by AUSTRAC, in partnership with the Australian Federal Police and the Australian Border Force.
The full media release can be accessed here. The guide can be accessed here.
Publication
On 16 January 2023 Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022 on digital operational resilience for the financial sector (DORA) entered into force.
Publication
Executive Vice President Vestager’s momentous tenure as Commissioner responsible for EU competition policy is nearing its end.
Publication
On November 28, 2023, the European Commission (EC) adopted its first list of Projects of Common Interest (PCIs), i.e., projects within the EU territory, and Projects of Mutual Interest (PMIs), i.e., projects connecting the EU with other countries, including 166 projects implementing the European Green Deal.
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