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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 2023
This article is co-authored with Abhi Ravishankar, Steven Li, Jack Mackenzie-Wood, Nina Stammbach and Joel McKay.
August was another fast moving month in the Financial Services sector. Treasury released consultation materials on the current regulatory framework for managed investment schemes, as well as new Australian Financial Services (AFS) licensing exemptions for Foreign Financial Service providers (FFSPs), both of which have a potentially large impact on investment levels in Australia. August was a very litigious month for ASIC, with the regulator commencing greenwashing proceedings, an action for breach of the design and distribution obligations (DDOs), and an action for misleading conduct by home insurers. ASIC also released its 2023/2024 Corporate Plan, which outlined how it intends to achieve its goals of improved product design and distribution, sustainable finance practices, retirement outcomes and technology risks. Meanwhile, APRA has established new remuneration disclosure requirements for industries under its supervision, granted RSE licensee directors further relief from change of control restrictions, and released the results of the 2023 superannuation performance test. APRA also released its 2023/2024 Corporate Plan which outlined how it intends to protect the safety and resilience of regulated entities and promote confidence and stability in the financial system. AUSTRAC has recently warned of scammers posing as AUSTRAC to deceive members of the public.
On 4 August 2023, Treasury published a consultation paper seeking feedback on the appropriateness of the existing regulatory framework for managed investment schemes (the Review).
The Review will examine whether the existing framework for managed investment schemes is still “fit for purpose” after more than two decades of operation. Specifically, it will be seeking feedback regarding the following items:
This consultation closes 29 September 2023.
The media release can be accessed here, and our industry insight can be accessed here.
On 7 August 2023, Treasury announced that it is consulting on its exposure draft on Australian financial service (AFS) licence exemptions for foreign financial services providers (FFSPs). If passed, the draft legislation will come into effect on 1 April 2024.
The new legislation proposes the following licensing exemptions:
This consultation period closed 8 September 2023.
The full media release can be accessed here, and our industry insight can be accessed here.
On 2 August 2023, ASIC warned market participants that targeted enforcement actions will continue as part of the regulator’s focus on protecting consumers from harm and upholding market integrity.
The warning came after the release of ASICs enforcement and regulatory update for the half year ending 30 June 2023 which revealed that over 125 criminal charges had been laid against individuals prosecuted by ASIC, and approximately $109 million in civil penalties imposed by the courts.
ASIC Deputy Chair Sarah reaffirmed ASIC’s commitment to pursuing insider trading and market manipulation deterrence, and warned of further action for misconduct in coming months.
The full media release can be accessed here.
On 3 August 2023, ASIC announced that it commenced its first litigated design and distribution obligations (DDO) action against an online investment platform in connection with its contract for difference (CFD) product.
ASIC alleged that the online platform failed to make an appropriate target market determination (TMD) for its high risk CFD product. ASIC was concerned that the TMD was too broad for a product that was as high risk and speculative as its CFD product, which contributed to almost 20,000 of the platform’s retail clients losing money. ASIC also alleged that the online investment platform was in breach of its licence obligations to provide its financial service “efficiently, honestly and fairly”.
ASIC is seeking pecuniary penalties from the Federal Court.
The full media release can be accessed here, and the concise statement can be accessed here. The Originating Process can be accessed here.
On 8 August 2023, ASIC announced the extension of the transitional licensing relief for FFSPs providing financial services to Australian wholesale clients.
The transitional arrangements for “sufficient equivalence relief” and “limited connection relief” which were previously due to expire on 31 March 2024 have now been extended to 31 March 2025 under ASIC Corporations (Amendment) Instrument 2023/588.
Consistent with the extension of the transitional arrangements, ASIC has also delayed the commencement of the funds management relief (ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199) until 1 April 2025.
The full media release can be accessed here, and our industry insight can be accessed here.
On 10 August 2023, ASIC announced it is consulting on its proposal to extend product intervention orders for short term credit facilities and continuing credit contracts, which were previously due to expire on 15 January 2024, so that they remain in force until they are revoked or sunset.
ASIC has published its consultation paper, CP 371 – Product intervention orders: Short term credit facilities and continuing credit contracts (CP 371), which outlined its proposal and highlighted how the existing product intervention orders have been effective in reducing significant detriment to retail clients.
This consultation closed 31 August 2023.
The full media release can be accessed here, and CP 371 can be accessed here.
On 11 August 2023, ASIC announced another greenwashing proceeding against a super fund trustee. ASIC alleged that the trustee made false or misleading representations to the market, claiming it was an ethical and responsible super fund. ASIC drew on representations and conduct between 1 February 2021 – 30 June 2022 made via the fund’s channels (website, social media, SRI policy, impact report, PDS, and public speeches by senior executives).
The trustee marketed itself as a responsible investment leader that applied responsible investment principles across its entire product offering. The trustee also represented that the fund, inter alia, considers ESG risks and provides responsible and sustainable investments (eg. specifically excludes investments in tobacco, Russia, oil tar sands projects, and coal mining), placed certain companies on an investment restriction list for Australian equities and an investment restriction list for international equities. ASIC also alleged that the fund’s investments contradicted their representations, and listed various direct and indirect holdings in gambling, tobacco, Russia, oil tar sand, and coal mining investments.
Notably, ASIC’s latest greenwashing action placed the fund’s investment quarterly reports, which allegedly listed the fund’s exposure to restricted companies from its investment restrictions list, in the spotlight. Those reports were allegedly presented to Investment Committee (which included its CEO, CIO, company secretary and director). Hence, ASIC submitted that there was a level of knowledge in relation to the alleged greenwashing.
The full media release can be accessed here.
On 15 August 2023, ASIC announced that it is consulting on its proposal to extend the operation of DDO relief instrument, ASIC Corporations (Design and Distribution Obligations Interim Measures) 2021/784, for another five years.
The instrument provides relief for distributors from the requirement to report to product issuers where they have received no complaints during a reporting period. The instrument is due to expire on 1 October 2023 and ASIC is inviting industry feedback on its proposal to extend the expiry of the instrument until 5 October 2028.
This consultation closed 25 August 2023.
The full media release can be accessed here.
On 16 August 2023, ASIC published its report titled: Report 768 Navigating the storm: ASIC’s review of home insurance claims (REP 768), following an industry assessment of claims handling practices in the Australian home insurance market.
The review examined the claims handling processes of six home insurers (who in aggregate, form 63% of the Australian home insurance market) in relation to over 218,000 claims lodged between January and March 2022.
REP 768 identified five key areas of improvements insurers should make in their claims handling processes:,
ASIC has called on insurers to address these issues immediately in its complaint handling and dispute resolution functions. ASIC also indicated that it will continue to monitor claims handling practices and take regulatory action where necessary.
The full media release can be accessed here, and REP 768 can be accessed here.
On 17 August 2023, the Full Federal Court dismissed ASIC’s appeal against a bank and its wholly owned subsidiary in relation to an alleged breach of conflicted remuneration laws. ASIC alleged that the bank and its subsidiary entered into an agreement in which the subsidiary paid the bank to distribute its super product via its branch and online channels to retail clients.
At trial and on appeal, ASIC alleged that the money paid under this agreement was in breach of conflicted remuneration laws as it was “reasonably capable of influencing the choice of financial product or financial product given by the bank to retail clients”.
In dismissing the appeal, the Full Court found that the structuring of these transactions ensured that the benefits were not capable of influencing the financial advice given to retail clients, namely:
ASIC is considering the judgment carefully to determine whether it will apply for special leave to appeal the decision to the High Court of Australia.
The full media release can be accessed here, and the full judgment can be accessed here.
On 25 August 2023, ASIC announced it has commenced civil penalty proceedings against two home insurers (within the same corporate group) for misleading consumers about loyalty discounts in connection with its home insurance policies.
ASIC alleged that the representations made about the loyalty discounts for over one million home insurance policies held by consumers from January 2017 to December 2022 were misleading as premiums for the home insurance policies were increased before the discounts were applied.
ASIC further alleged that the failure to accurately disclose how the pricing algorithm operated was in breach of the general prohibitions against misleading and deceptive conduct under the ASIC Act and Corporations Act. ASIC also alleged that the insurers failed to comply with the general obligation of AFS licensees to operate “efficiently, honestly and fairly”.
ASIC is seeking pecuniary penalties and adverse publicity orders to be applied against the home insurers.
The full media release can be accessed here.
On 28 August 2023, ASIC released its Corporate Plan for 2023–2027, which outlined how it intends to deliver its four-year strategic priorities, being product design and distribution, sustainable finance practices, retirement outcomes and technology risks.
ASIC’s Corporate Plan also identified six core strategic projects:
ASIC’s Corporate Plan also listed various other strategic and regulatory projects and their expected timeframes. These projects cover cross-sector matters, credit and banking, superannuation, insurance, financial advisers, market infrastructure, market supervision, corporations, registered liquidators, financial reporting and audit.
ASIC set out its budget allocation for 2023-24, which totals $433.7 million.
The full report can be read here.
On 1 August 2023, APRA announced it finalised Prudential Standard CPS 511 Remuneration (CPS 511) which established new remuneration disclosure requirements for authorised deposit institutions (ADIs), insurers and superannuation entities.
The new requirements are designed to uplift disclosure practices for executive remuneration and respond to concerns that the lack of visibility of executive pay has not properly facilitated financial disincentives for management in the event of risk failures or poor corporate conduct.
Under CPS 511, regulated entities will be required to:
The finalised standard will come into effect on 1 January 2024.
The media release can be accessed here and CPS 511 can be accessed here.
On 2 August 2023, APRA announced that it is consulting on its proposal to amend three private health insurance reporting standards:
Following amendments to private health insurance legislation, APRA is proposing to replace the terms “prosthesis”, “prostheses” and “prosthetic” with “medical device/s” or “human tissue product/s” to ensure consistency between the reporting standards and legislation.
This consultation will close on 31 August 2023.
The full media release can be accessed here, and the amended reporting standards can be accessed here.
On 3 August 2023, APRA announced it published two new frequently asked questions in relation to the Your Future Your Super Performance test. The updated practical guidance answers the following questions:
The full media release can be accessed here, and the FAQ page can be accessed here.
On 3 August 2023, APRA released a letter to general insurers on the use of alternative reinsurance arrangements. The regulator noted that they were aware that the reinsurance market has been challenged recently by a range of factors including COVID-19 and the war in Ukraine. Against this backdrop, APRA suggested insurers consider the use of alternative reinsurance arrangements, such as catastrophe bonds and insurance linked securities, in addition to traditional reinsurance. They also reminded insurers that these alternative arrangements are permitted by Prudential Standard GPS 116 Capital Adequacy: Insurance Concentration Risk Charge.
The full letter can be accessed here.
On 9 August 2023, APRA released its final technical determination and an updated information paper on the combining of MySuper product performance histories for the purposes of the performance test. The final determination removed the need for APRA to make individual determinations for every MySuper product for which performance histories are required to be combined. The information paper provides an update on APRA’s methodology in combining performance histories for MySuper products in circumstances where there are across-product and within-product changes.
Across-product: This is where a product has ceased, and members have been transferred into a new product under a new MySuper authorisation. The regulations allow APRA to combine performance histories for these changes. In doing so, APRA will have regard to the following principles:
Within-product: This is where there is a change to the structure or nature of a product that continues under an existing MySuper authorisation. The new technical determination modifies the performance test formulae where there is such a change, ensuring that any changes to the product are reflected in the performance history.
The final technical determination can be accessed here, and the information paper can be accessed here.
On 15 August 2023, APRA released an instrument exempting certain RSE licensee directors from the change of control and ownership provisions of the Superannuation Industry (Supervision) Act 1993. The relevant provisions require persons to obtain approval from the regulator to own or hold a controlling stake of more than 15 per cent in an RSE licensee.
The new exemption applies to persons whose shareholding in a RSE licensee:
The full media release can be accessed here, and the instrument can be accessed here.
On 22 August 2023, APRA released its Quarterly Superannuation Performance publication and Quarterly MySuper statistics report for the June 2023 quarter. The statistics showed a sustained growth in superannuation driven by strong contribution inflows. Some key statistics include a 7.6% growth in total superannuation assets and a 12.9% growth in total contributions.
The full statistics publication can be accessed here.
On 23 August 2023, APRA released its quarterly private health insurance publication for the June 2023 quarter. Among other things, the publication reports a net profit after tax of $2.2 billion for the year ending 30 June 2023, and a 3.3% increase in premium revenue as a result of strong membership growth.
The full statistics publication can be accessed here.
On 24 August 2023, APRA released its quarterly general insurance performance statistics publication for the June 2023 quarter. Among other things, the publication reported a net profit after tax of $4.6 billion, a return on net assets of 13 percent, and a 9.3% growth in gross earned premium for the year ending June 2023.
The full statistics publication can be accessed here.
On 24 August 2023, APRA released its quarterly life insurance performance statistic publication for the June 2023 quarter. Notably, the publication reported a 116.9% increase in total revenue for the industry in the year ending 2023, as well as a 136.1% increase in net profit after tax.
The full statistics publication can be accessed here.
On 29 August 2023, APRA released its latest Corporate Plan, which outlined a change in direction in APRA’s priorities for the coming four years in response to developing risks impacting the global financial services industry. The plan identified three key outcomes in which APRA will direct its resources and efforts over the course of 2023/2024 in an attempt to achieve:
In doing so, APRA also stated its intention to address the following key priority areas:
The full media release can be accessed here, and the full 2023/2024 Corporate Plan can be accessed here.
On 31 August 2023, APRA released the results of the 2023 superannuation performance test. This year’s test evaluated the performance of 805 “trustee directed products” and 64 MySuper products. The test results showed:
APRA Deputy Chair Margaret Cole noted the success of the performance test, highlighting that since its inception in 2021, nine underperforming MySuper products have exited the market and a total of 800,000 members have moved to better performing products.
The full media release can be accessed here, and the performance test results can be accessed here.
On 4 August 2023, AUSTRAC warned that members of the public reported being called by scammers posing as AUSTRAC or “Australian Financial Intelligence Unit (FIU) investigators”. The scammers are apparently using this to deceive individuals into thinking that their bank account has been used for money laundering and is the subject of an investigation. This is designed to pressure recipients to transfer their money into an account for safe-keeping.
More information on the update can be found here.
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