Financial services monthly wrap-up: October 2024

01 ASIC issues 2023-24 update on licensing and professional registration activities

On 11 October 2024, ASIC published Report 797 Licensing and professional registration activities: 2024 update (REP 797), detailing recent and proposed changes to AFS licensing processes, as well as information about registration and licence applications from the 2023-24 financial year.

REP 797 discusses current and emerging AFS licensing issues including:

• Regulation of digital (crypto) assets.
• Transitional arrangements for Buy Now Pay Later services.
• Reforms to payments systems.
• Modification of the reportable situations regime.
• Extension of the Financial Accountability Regime to the insurance and superannuation industries.
• Launch of the new Professional Registers Search.
• Licensing obligations of carbon market participants.
• New requirements for financial advisers to be registered.
• New regime for foreign financial services providers.

REP 797 also revealed that, between July 2023 and June 2024, ASIC:

• Received 1,531 licensing and registration applications.
• Finalised 1,246 applications for new and varied AFS and credit licences.
• Granted 280 new AFS licences and 143 new credit licences.
• Approved 495 AFS and credit licence variation applications from existing licensees.
• Registered 113 company auditors, 45 SMSF auditors and 17 liquidators.
• Cancelled or suspended 239 AFS licences and 204 credit licences.

ASIC’s media release can be accessed here. REP 797 can be accessed here.

02 Changes to OTC derivative transaction reporting are now in effect

The ASIC Derivative Transaction Rules (Reporting) 2024 (2024 Reporting Rules) commenced on 21 October 2024, replacing the ASIC Derivative Transaction Rules (Reporting) 2022.

The 2024 Reporting Rules were finalised following extensive industry engagement across four rounds of public consultation in November 2020, May 2022, November 2023 and February 2024.

The 2024 Reporting Rules introduce changes to:

• Align with international reporting standards;
• Consolidate transitional provisions and exemptions; and
• Ensure reporting requirements are fit for purpose.

ASIC’s media release can be accessed here. The 2024 Reporting Rules can be accessed here.

03 ASIC proposes updates to RG 51 Applications for relief and RG 108 No-action letters

ASIC proposes to update Regulatory Guide 51 Applications for relief (RG 51) and Regulatory Guide 108 No-action letters (RG 108). Industry participants have been invited to provide feedback on whether the guidance is sufficiently clear to meet the needs of users.

RG 51 provides guidance for applicants and advisers who are applying to ASIC for relief, including the types of applications, the submission process, ASIC’s general approach, and the types of relief available.

RG 108 provides guidance for applicants and advisers who are applying to ASIC for a no-action letter, including the application process and the factors ASIC considers when dealing with requests.

ASIC’s proposed changes to RG 51 and RG 108 are intended to reflect current regulatory approaches to applications for relief and no-action letters, to incorporate additional guidance, and to amend outdated references.

ASIC’s media release can be accessed here. More information on consultation CS 11 Proposed updates to RG 51 and RG 108 can be accessed here.

04 ASIC releases Annual Report for 2023-24

On 22 October 2024, ASIC released its Annual Report for 2023-24 (Report). The Report highlights ASIC’s regulatory and enforcement outcomes in relation to protecting customers, reducing costs for businesses, and strengthening capabilities.

According to the Report, in 2023-24, ASIC:

• Completed 690 surveillances and commenced 168 formal investigations.
• Took down over 7,300 investment scams and phishing websites.
• Prosecuted 186 individuals for strict liability offences, resulting in $1.1 million in fines.
• Contributed to the Commonwealth Director of Public Prosecutions prosecuting 23 individuals on criminal charges.
• Commenced 32 civil proceedings, resulting in $90.8 million in civil penalties imposed by the courts.
• Issued 26 infringement notices, totalling $7.2 million in infringement penalties.
• Removed or restricted 64 individuals and companies from providing financial services.

ASIC considers that it has delivered strong outcomes for its key strategy projects: scams, sustainable finance practices, crypto assets, design and distribution obligations, cyber and operational resilience, and digital tech and data.

ASIC’s media release can be accessed here. ASIC’s Annual Report 2023-24 can be accessed here.

05 Federal Court finds contract term in life insurance policy was liable to mislead the public

The Federal Court has found that a ‘pre-existing condition’ term in three HCF Life Insurance Company Pty Ltd (HCF Life) policies was liable to mislead the public. The relevant term:

• Purported to allow HCF Life to deny coverage if a customer did not disclose a pre-existing condition before entering the contract, and a medical practitioner subsequently formed an opinion that signs or symptoms of the condition existed prior to the customer entering into the contract, even if a diagnosis had not been made.
• Suggested that HCF Life could deny coverage even if the customer was not aware of the pre-existing condition when entering into the insurance contract and a reasonable person in the circumstances would not have been aware of the condition.

Justice Jackman noted that an ordinary and reasonable reader would not necessarily understand the effect of section 47 of the Insurance Contracts Act 1984 (Cth), which prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the customer was unaware of the condition when taking out the insurance, and a reasonable person in the circumstances could not be expected to have been aware of the condition.

ASIC had also alleged that the term was an unfair contract term under the ASIC Act. However, this part of the case was dismissed.

ASIC’s media release can be accessed here. See the Federal Court judgment here.

06 ASIC alleges insurer misled customers over pricing discounts

ASIC has commenced court proceedings in the Federal Court against QBE Insurance (Australia) Limited (QBE), alleging that the insurer misled customers about the value of discounts on premiums for a range of general insurance products, in contravention of sections 12DB(1)(a), (e), (g), (i), and/or 12DF(1) of the ASIC Act.

Between July 2017 and September 2022, QBE sent renewal notices and made statements, in product disclosure statements published on QBE’s website, that contained discount promises. However, ASIC alleges that QBE may not have delivered on these discount promises because QBE’s pricing mechanism involved:

• Imposing a minimum premium to ensure it was at or above the lowest retail premium QBE was prepared to accept from a customer to insure a particular risk.
• Using a pricing algorithm at the renewal of the insurance policy to limit the extent of any reduction (in percentage terms) in the premium compared to the expiring premium.

ASIC is seeking civil penalties, declarations, and adverse publicity orders.

ASIC’s media release can be accessed here. See the Originating Process here and the Concise Statement here.

07 ASIC warns governance gap could emerge in first report on AI adoption by licensees

ASIC has released Report 798 Beware the gap: Governance arrangements in the face of AI innovation (REP 798) which reviews the governance practices of 23 financial services and credit licensees in relation to artificial intelligence (AI).

REP 798 revealed that nearly half of licensees did not have policies in place that considered consumer fairness or bias, and even fewer had policies governing the disclosure of AI use to consumers. Other key statistics include:

• 57% of all use cases were less than two years old or in development.
• 61% of licensees in the review planned to increase AI use in the next 12 months.
• 92% of generative AI use cases reported were less than a year old, or still to be deployed. Generative AI made up 22% of all use cases in development.

ASIC urges licensees to proactively adopt appropriate governance frameworks and compliance measures.

ASIC’s media release can be accessed here. REP 798 can be accessed here.

08 RBA commences review of merchant card payment costs and surcharging

The Reserve Bank of Australia (RBA) has commenced its Review into Retail Payments Regulation (Review), which will examine the costs merchants face when accepting card payments and the framework for surcharging. The RBA is inviting submissions in response to the Issues Paper by 3 December 2024.

The Review seeks to assess and improve the current regulatory framework to ensure a safe, convenient and efficient payments system. The Issues Paper discusses potential regulatory responses that the RBA could consider, including whether:

• The RBA’s existing regulations and initiatives on interchange and scheme fees, least-cost routing and surcharging continue to achieve their desired outcomes.
• Greater transparency in fees should be required from payment service providers and card schemes to promote competition and efficiency and put downward pressure on merchant card payment costs.

The RBA’s media release can be accessed here. The Issues Paper can be accessed here.

09 APRA publishes Quarterly Superannuation Product Statistics, Superannuation Industry Publication and Fund-level Statistics

On 2 October 2024, APRA published the June 2024 edition of the Quarterly Superannuation Industry Publication, Quarterly Superannuation Product Statistics, and the Quarterly Fund-level Statistics.

The Quarterly Superannuation Industry Publication contains data on superannuation products, investment options, and member demographics.

The Quarterly Superannuation Product Statistics lists all superannuation products offered by each APRA-regulated superannuation fund and the investment menus and investment options available through these products.

The inaugural Quarterly Fund-level Statistics contains detailed member demographic information and total fund investments by asset sector types for each APRA regulated superannuation fund with more than six members.

APRA’s media release can be accessed here.

10 APRA releases quarterly insurance statistics for June 2024

On 14 October 2024, APRA published industry aggregate insurance statistical publications for the June 2024 quarter.

The quarterly general insurance performance statistics set out aggregate summaries of financial performance and position, investments and capital adequacy for the general insurance industry.

The quarterly life insurance performance statistics set out industry aggregate summaries of financial performance and position, capital adequacy, as well as details on the performance of individual product groups in the life insurance industry.

The quarterly private health insurance performance statistics set out aggregate summaries of financial performance and position and capital adequacy in the private health insurance industry.

APRA’s media release can be accessed here.

11 APRA publishes 2023-24 Annual Report

On 16 October 2024, APRA released its Annual Report for 2023-24 (Report). The Report details actions taken by APRA to deliver on its purpose to maintain the strength and resilience of the Australian financial system.

The Report highlights that, in the 2023-24 financial year, APRA focused on:

• Strengthening industry resilience and accountability.
• Maintaining a strong and resilient banking system.
• Addressing industry challenges in insurance.
• Driving better outcomes for super members.
• Collaborating with other regulators.
• Achieving proportionality and simplicity in regulatory compliance.
• Implementing a “constructively tough” approach to enforcement.

APRA’s media release can be accessed here. APRA’s Annual Report 2023-24 can be accessed here.

12 APRA releases material service provider register template

APRA has released a material service provider register template, which was developed to assist entities to demonstrate the linkages between their critical operations and the material service providers they rely upon.

APRA prefers that regulated entities use this template when submitting their registers in compliance with paragraph 51 of Prudential Standard CPS 230 Operational Risk Management.

Authorised deposit-taking institutions, superannuation trustees, and insurers must submit a completed material service provider register to APRA by 1 October 2025.

APRA’s media release can be accessed here. The template is available on the APRA website here.

13 APRA releases letter to RSE licensees on intensified supervision approach

On 22 October 2024, APRA addressed a letter to all registrable superannuation entity (RSE) licensees outlining its approach for intensifying supervision of fund-level expenditure over the next 12 months.

The letter clarifies APRA’s planned activities, which aligns with the approach set out in APRA’s Corporate Plan. APRA will:

• Prioritise supervisory attention on fund expenditure where member benefit is not immediately evident or may not be reasonably justified.
• Take a targeted approach, partly informed by SRF 332.0 Expenses data, to:
  • Discretionary expenditure categories such as travel, entertainment and conferences.
  • Relative and absolute size outliers, including consideration of impact to members.
  • Particular types of payees and payments where benefit to members is not immediately apparent.
• Continue to engage with RSE licensees.
• Publish more data to improve transparency across the superannuation industry.

APRA’s media release can be accessed here. The letter can be accessed here.

14 APRA amends operational risk financial requirements for superannuation trustees

APRA has amended Prudential Standard SPS 114 Operational Risk Financial Requirement (SPS 114) to:

• Clarify the purpose of the operational risk financial requirements (ORFR).
• Widen the allowable range of uses for the ORFR.
• Introduce a clear and direct relationship with Prudential Standard CPS 230 Operational Risk Management.
• Amend the APRA notification requirements to facilitate further use of the ORFR.

These changes are intended to strengthen operational resilience by ensuring trustees can better access the financial resources held to meet the ORFR when needed and to maintain an appropriate level of reserving. The amended SPS 114 will take effect from 1 July 2025.

APRA’s media release can be accessed here. More information on SPS 114 and the consultation can be accessed here.

15 APRA increases transparency of super fund expenses

APRA has released fund level data on expenditure covering a broad range of categories, including investment-related expenses and administration expenses such as advertising, sponsorship and payments to industrial bodies. The inaugural publication is part of APRA’s intensified supervision of, and targeted approach to, fund level expenditure.

APRA’s media release can be accessed here.

16 AUSTRAC: Changes to enrolment and registration forms

AUSTRAC has released changes to the enrolment and registration experience through AUSTRAC Online (AO). They have released a new online interface and new forms to enrol or register a new business, or update their business details with AUSTRAC.

What has changed?

The new forms provide:

• An enhanced and simplified registration and enrolment experience.
• Streamlined enrolment for new users, with a verification email at the start of the enrolment process.
• Improved messages and guidance on the forms, so they are easier to complete.

What has stayed the same?

• Businesses will still enrol, register, update their business details, or un-enrol through the AO.
• Users will continue to access the enrolment and registration process with their existing AO user access and permissions.
• There are no changes to AML/CTF enrolment, registration or transaction reporting obligations.

The new forms came into effect on 11 November 2024 .

Read the full media release here.

Reminder to transition your IFTI-E reporting to the new IFTI-E v2.0 scheme

AUSTRAC has reminded reporting entities to transition to this scheme, which was introduced in 2022. AUSTRAC has stressed the importance of completing testing in the AO training environment, then to contact AUSTRAC to schedule a test file assessment. Upon successful completion, reporting entities will be provided access to submit live reports using the new functionality.

Read the full media release here.

17 AUSTRAC: Important changes to customer identification obligations for online gambling service providers

In September 2023, the AML/CFT Rules were amended for the applicable customer identification procedures (ACIP) that apply to online gambling service providers. From 29 September 2024, all online gambling service providers must complete ACIP before creating an online gambling account or commencing to provide any designated services.

Verifying customer identify is essential to make sure providers:

• Protect themselves against criminal exploitation.
• Can identify individuals on the National Self Exclusion Register.

Read the full media release here.

18 AUSTRAC: Case study: Money laundering through cybercrime

AUSTRAC is involved in the Serious Financial Crime Taskforce (SFCT), led by the Australian Taxation Office, to combat money laundering and other crimes. In late 2018, a joint investigation as part of the SFCT, uncovered a major international criminal syndicate using fraudulently obtained identities to commit large-scale cybercrimes.

Using the darknet marketplaces, and single-use phones and fake emails, the syndicate had stolen an estimate of $3.3 million, and laundered $2.5 million by transferring the funds to a contact in Asia.

AUSTRAC has encouraged reporting entities to report and combat such crimes by:

• Reading AUSTRAC’s anti-money laundering resources and watching the industry specific webinars.
• Reviewing latest suspicious activity indictors.
• Submitting a suspicious matter report to AUSTRAC if you suspect any suspicious activity.

Read the full media release here.

19 AUSTRAC: Updated ML/TF risk assessments guidance for your business

AUSTRAC has released updated information to assist businesses to use AUSTRAC guidance and feedback when assessing risks associated with money laundering and terrorism financing.

The updated guidance provides information on:

• How to take AUSTRAC guidance and feedback into account to develop an effective AML/CTF program.
• The key sources of AUSTRAC guidance on ML/TF risks.
• How to determine whether particular guidance or feedback is relevant to your business.
• Other sources of information that may be useful.

Read the assessment guide here.

Read the full media release here.

20 AUSTRAC: New guidance on outsourcing AML/CTF functions

On 1 October 2024, AUSTRAC released a new guidance to assist businesses in identifying and managing the risks that may arise when outsourcing AML/CTF functions.

When outsourcing, business are generally still liable for any breach of AML/CTF obligations, therefore it is essential to remain up to date with AML/CTF obligations. A breach of these obligations can incur penalties.

Key recommendations are:

• Identifying the risks that may arise through outsourcing.
• Conducting due diligence on outsourcing providers.
• Understanding restrictions on sharing AML/CTF information.
• Using a written agreement for outsourcing.
• Monitoring and review ongoing outsourcing arrangements.
• Documenting procedures for managing outsourcing arrangements in your AML/CTF program.

What you should do

Read and understand the new guidance, and ensure that, for outsourcing, your processes or reviews are up to date.

Read the full media release here.