Financial services monthly wrap-up: February to April 2024

01 ASIC makes opening statement before inquiry into insurers’ responses to 2022 major floods claims

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:

• Report 765: When the price is not right: Making good on insurance pricing promises, which revealed systemic failures by insurers to fulfil their pricing promises; and
• Report 768: Navigating the storm: ASIC’s review of home insurance claims, which revealed weaknesses in five key areas related to claims handling.

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.

02 ASIC and APRA issue joint letter on Financial Accountability Regime commencement and implementation

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.

03 The Federal Court finds that a term in Auto & General Insurance Company’s contracts is not unfair

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:

• imposed an unclear disclosure obligation on the insured;
• suggested that Auto & General had a broader right to refuse or reduce claims than permitted under the ASIC Act; and
• was liable to mislead or confuse insureds as to their rights and obligations under the contract.

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.

04 ASIC issues final reminder for unregistered financial advisers

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.

05 ASIC grants class no-action position regarding UCTs for institutional markets

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):

1. for a contravention of section 12BF(2A) or (2C) of the ASIC Act, where:
   1. each counterparty to a standard form contract is an Institutional Investor (as defined in the Letter); or
   2. where each counterparty to an Industry Standard Form Contract is a Wholesale Client (as defined in section 761G of the Corporations Act and the contract is used for the purpose of a dealing in, or related to a dealing in, financial markets;
2. where an Australian financial services licensee who has the benefit of the no-action position specified in paragraph 1(a) or 1(b) above does not report under section 912DAA of the Corporations Act, a contravention of subsections 12BF(2A) or (2C) of the ASIC Act; and
3. for a contravention of section 912A(1)(c) of the Corporations Act by an Australian financial services licensee who has the benefit of the no-action position specified in paragraph 1(a) or 1(b), where that contravention is:
   1. non-compliance with subsections 12BF(2A) or (2C) of the ASIC Act; or
   2. non-compliance with section 912DAA of the Corporations Act constituted by failing to report a contravention of subsections 12BF(2A) or (2C) of the ASIC Act in reliance on paragraph 2 above.

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.

06 ASIC calls on industry to increase oversight of choice super performance and address issues

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:

• prioritise investment performance throughout the product lifecycle;
• have systems in place to detect and address persistent underperformance;
• regularly monitor investment option performance against return objectives and benchmarks;
• ensure they have sufficient capacity to manage investment options, including clear and comprehensive policies, resources, and data reporting arrangements;
• effectively communicate with members about performance, which could include targeted communications and comparisons of actual returns to return objectives; and
• act in response to sustained underperformance to minimise member risks.

Report 779 can be accessed here. The full media release can be accessed here.

07 ASIC calls on insurers to improve claims handling practices

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.

08 APRA and ASIC issue final rules and further guidance for the Financial Accountability Regime

On 8 March 2024, APRA and ASIC have released a package which includes:

• the Regulator rules, which prescribe information to be included in the FAR register of accountable persons;
• the Transitional rules, which prescribe information to be provided by authorised deposit-taking institutions (ADIs) regarding under the existing Banking Executive Accountability Regime (BEAR) at the transition point to the FAR;
• descriptions of ADI key functions; and
• reporting form instructions.

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.

09 ASIC and APRA release a cross-industry information package on the Financial Accountability Regime

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:

• an information paper to assist relevant entities and their accountable persons to comply with their obligations under the FAR;
• an updated accountability statement guide and template to assist relevant entities to prepare accountability statements; and
• reporting form instructions to assist relevant entities report FAR breaches.

The package also includes a consultation package which comprises:

• a consultation letter to all APRA regulated insurance and superannuation entities outlining steps to be taken ahead of the FAR’s commencement;
• the Draft Amendment Instrument; and
• the draft key functions descriptions for insurance and superannuation entities.

The consultation period ends 19 April 2024.

The full media release can be accessed here.

10 ASIC releases guidance on climate reporting and greenwashing for small businesses

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.

11 ASIC wins first greenwashing civil penalty action against Vanguard

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:

• 12 product disclosure statements;
• a media release;
• statements published on Vanguard’s website;
• a Finance News Network interview on YouTube; and
• a presentation at a Finance News Network Fund Manager Event which was published online.

The full media release can be accessed here. The judgment can be accessed here.

12 ASIC remakes five ‘sunsetting’ class orders for managed funds

The five class orders which were due to expire (or ‘sunset’) on 1 April 2024 are:

• [CO 13/1200] - Periodic statements relief for AQUA quoted and listed managed investment scheme managed investment scheme issuer;
• [CO 13/1406] - Land holding for primary production schemes;
• [CO 13/1409] - Holding assets: Standards for responsible entities;
• [CO 13/1410] - Holding assets: Standards for providers of custodial and depository services; and
• [CO 13/1621] - Exemption and declaration for the operation of mFund.

The following legislative instruments will operate in place of these class orders:

• ASIC Corporations (Periodic Statement Relief for Quoted Securities) Instrument 2024/14;
• ASIC Corporations (Land Holding for Primary Production Schemes) Instrument 2024/15;
• ASIC Corporations (Asset Holding Standards for Responsible Entities) Instrument 2024/16;
• ASIC Corporations (Custody Standards for Providers of Custodial and Depository Services) Instrument 2024/17; and
• ASIC Corporations (mFund) Instrument 2024/18.

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.

13 APRA publishes updated to FAQs on Superannuation Data Transformation and Outcomes Assessment

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.

14 APRA consults on proposed changes to the operational risk financial requirement for superannuation

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:

• clarify the purpose of the operational risk financial requirement (ORFR);
• introduce a clear and direct relationship with the related Prudential Standard CPS 230 Operational Risk Management (CPS 230);
• widen the range of uses for the ORFR; and
• amend the notification requirements to facilitate use of the ORFR.

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.

15 APRA releases letter to General Insurers updating reporting guidance on large exposures on GRF 117.0 / GRF 117.0(G)

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.

16 APRA releases letter on upcoming climate risk self-assessment survey

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.

17 AUSTRAC begins public consultation on its outsourcing guidance

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:

• comply with their AML/CTF obligations when outsourcing,
• identify, mitigate and manage money laundering and terrorism financing (ML/TF) risks that could arise from outsourcing, and
• take steps to ensure providers tailor outsourcing arrangements to their business and their specific ML/TF risks.

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.

18 AUSTRAC reminds reporting entities to update risk assessments and compliance programs following FATF’s jurisdictions update

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.

19 AUSTRAC commences investigation into bet365

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.

20 AUSTRAC warns of scams impersonating AUSTRAC

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.

21 AUSTRAC issues businesses with infringement notices for failing to comply with their reporting obligations

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.

22 Treasury consults on Buy Now, Pay Later regulatory reforms

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.

23 Treasury introduces new climate reporting regime

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.