Financial services monthly wrap-up: April 2022

ASX’s consultation paper ‘Enhancing the ASX Investment Products Offering’ was released

The ASX has released its Enhancing the ASX Investment Products Offering consultation paper as part of a two-stage consultation process which it notes is targeted towards ensuring its investment product offering is adequately supported by a clear and consistent rule framework to safeguard investors’ interests and provide issuers flexibility in innovation and bringing new products to market.

The consultation paper seeks submissions from all interested stakeholders on a range of policy issues relevant to achieving this outcome, including:

• admission requirements and processes;
• product names;
• investment mandates;
• permitted investments;
• portfolio disclosure;
• management agreements;
• management fees and costs;
• performance reporting;
• liquidity support;
• the mFund Settlement Service, and
• improving the information available to investors about investment products.

Submissions on this part of the consultation are asked to be in writing by close of business on Friday 24 June 2022.

Further information and the report can be found here.

APRA has set out its initial risk management expectations and policy roadmap for crypto-assets

APRA’s initial risk management expectations for all regulated entities that engage in activities associated with crypto-assets has been set out in a letter and includes a policy roadmap.

APRA noted that it expects that all regulated entities will adopt a prudent approach if they are undertaking activities associated with crypto-assets, and ensure that any risks are well understood and well managed before launching material new initiatives. The types of activities contemplated by APRA include, for example, investment in crypto-assets, lending linked with crypto-assets, issuance of crypto-assets, and providing services associated with crypto-assets for customers. In addition, entities may seek to invest in or partner with technology or other companies to provide new offerings for customers.

In particular, APRA has stated that it expects that all regulated entities will:

• Conduct appropriate due diligence and a comprehensive risk assessment before engaging in activities associated with crypto-assets, and ensure that they understand, and have actions in place to mitigate, any risks that they may be taking on in doing so;
• Consider the principles and requirements of Prudential Standard CPS 231 Outsourcing or Prudential Standard SPS 231 Outsourcing when relying on a third party in conducting activities involving crypto-assets; and
• Apply robust risk management controls, with clear accountabilities and relevant reporting to the Board on the key risks associated with new ventures.

Entities also need to ensure they comply with all conduct and disclosure regulation administered by ASIC. This will require robust conduct risk management and consideration of distribution practices and product design, as well as consideration of disclosure.

Further information can be found here.

ASIC’s product intervention order imposing conditions on the issue and distribution of contracts for difference has been extended for five years

ASIC notes its order has strengthened protections by reducing CFD leverage available to retail clients and by targeting product features and sales practices that amplify retail clients’ CFD losses. ASIC also released Report 724 Response to submissions on CP 348 Extension of the CFD product intervention order. The report summarises ASIC’s analysis of the impact of the order, using data from over 60 CFD issuers. It highlights the key issues raised in submissions to Consultation Paper 348 Extension of the CFD product intervention order (CP 348) and details ASIC’s responses to those issues.

The order has been extended until 23 May 2027.

Further information can be found here.

Governance practices of superannuation trustees has been strengthened in response to ASIC surveillance

ASIC surveillance found significant deficiencies in superannuation trustees’ conflicts management arrangements pertaining to investment switching. ASIC’s surveillance indicated a lack of strong oversight to prevent the potential misuse of price sensitive information by directors and senior executives for personal gain. In response to ASIC’s concerns, superannuation trustees have reviewed internal policies and procedures.

The subsequent action taken by trustees includes:

• Addressing deficiencies through updating or establishing policies;
• A focus on increased board-level engagement to enhance board oversight, input and direction;
• The provision to staff of better internal communication and training on the policies and associated obligations; and
• The undertaking of an independent review of its broader conflicts management frameworks.

Further information can be found here.

The relief from certain dollar disclosures in PDSs for litigation funding schemes has been extended by ASIC

The relief from certain dollar disclosures in PDSs for litigation funding schemes in ASIC Corporations (Disclosure in Dollars) Instrument 2016/767 has been extended until 1 October 2026 by ASIC Corporations (Amendment) Instrument 2022/264.

This extension is due to, as it pertains to litigation, a tactical advantage to opposing parties in class actions that could result from the public disclosure of some categories of information, which may not be in the interests of scheme members.

Further information can be found here.

APRA’s proposal of minor amendments to the significant financial institution definition

To align and centralise the significant financial institution definition within the prudential framework, APRA has released a cross-industry consultation on minor amendments.

Further information can be found here.

APRA’s launch of the next phase of its project to deepen the collection of superannuation data from across the industry

The launch of the second phase of APRA’s multi-year project focuses on enhancing the granularity of APRA’s data collection across the superannuation industry’s business operations.

APRA has indicated that this second phase will deliver more comprehensive data on retirement outcomes for superannuation members; the performance and efficiency of the industry; and governance, risk management practices, fund operations and industry risks.

The completion of Phase 1 in March last year focused on addressing urgent data gaps and extending collection to include choice products and investment options.

APRA’s multi-year project is focused on enhancing the breadth, depth and quality of data collected across the superannuation industry.

Further information can be found here.

APRA’s minor amendment to Prudential Standard CPS 226 Margining and risk mitigation for non-centrally cleared derivatives

APRA has included the Prudential Regulation Authority (UK) and Financial Conduct Authority (UK) in Attachment D’s list of foreign regulators whose margin requirements are eligible for substituted compliance.

Further information can be found here.

APRA’s release of additional draft life and general insurance reporting standards impacted by AASB 17 for consultation

APRA has released additional draft life and general insurance reporting standards impacted by AASB 17 (Australian Accounting Standards Board 17 Insurance Contracts), as well as revisions to the private health insurer reporting standards, for consultation.

Further information can be found here.

APRA and ASIC have published data on life insurance claims and disputes

Covering a rolling 12-month period from 1 January 2021 to 31 December 2021, APRA’s Life Insurance Claims and Disputes Statistics publication has been released and provides insight into key industry and entity-level claims and disputes outcomes for 20 Australian life insurers writing direct business (exclusive of reinsurance).

The data has also been reflected in ASIC’s MoneySmart Life insurance claims comparison tool.

Further information can be found here.

APRA’s release of updated FAQs pertaining to general insurance and the Financial Claims Scheme

APRA has released an expanded list of frequently asked questions as well as some amendments to the existing questions and answers.

Further information on APRA’s publication of updated frequently asked questions on general insurance and the Financial Claims Scheme can be found here.

APRA has proposed amendments to the prudential framework to support the Government’s cyclone and cyclone related flood damage reinsurance pool

In a letter to general insurers, APRA refers to its proposal to clarify that reinsurance contracts purchased from the Australian Reinsurance Pool Corporation by insurers will be treated as an exposure guaranteed by the Australian Government.

Further information on APRA’s letter on the consequential amendments to the prudential framework can be found here and here.