Australia's financial services regulatory and compliance landscape is changing rapidly
- Clyde & Co's weekly Regulatory Roundup will ensure you are up to date with the most important changes. In each edition, we will set out five key developments from the past week for you to consider.
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1. DDO: here.
Bit Trade, provider of the major Kraken crypto exchange to Australian customers, has been sued by ASIC for allegedly failing to comply with the design and distribution obligations for its margin trading product. ASIC has said that it failed to make a target market determination before offering the product to consumers. Design & distribution is an acute regulatory focus point for ASIC – we have been telling organisations to revisit their target market determinations (setting how to whom, and how they can issue and distribute products) for some time. Digital asset firms are no different in terms of the risk they face from the design & distribution regime, which can extend beyond the strict definition of financial and credit products; it is potentially even trickier for them given the complexity because of the evolving regulatory landscape. The full ASIC release is
2. Cyber preparedness / third parties:"none of us has control over the security of a third-party provider." It is a timely reminder, as broadly, across all regulators, we are seeing an increased focus on third party arrangements through new structures & enforcement action. For example: APRA CPS 230 is forthcoming, and will require prudential entities to “enhance third-party risk management by ensuring risks from material service providers are appropriately managed” (see here). This is in addition to CPS 234; and, under FAR, which APRA and ASIC will govern, failures in third party arrangements e.g. distribution, cyber operations, claims handling, will potentially create liability for individuals personally. The same happened recent for that CIO in the UK who was personally responsible for a third party provider's failure of an IT migration contract (see here). ASIC, in its recent corporate plan (see here), is focusing on technology risks as a strategic focus which naturally / inevitably covers supply chain risk. See page 7.
ASIC Chair Joe Longo has stressed that organisations must take an active approach to evaluating and managing third-party cyber risk. In his speech at the Australian Financial Review Cyber Summit, on 18 September 2023, he stated that cyber incidents will grow; that every system is vulnerable; and, one of the most important lessons in cyber security is that
3. Licensing update: licensing update for ACL and AFSL holders (there are about 11,000 all up in Australia). Between July 2022 and June 2023, ASIC: received 1,272 AFSL and ACL applications; finalised 1,464 applications; and, granted 332 new AFS licences and 149 new credit licences. ASIC has always approved far less applications than it receives - about a third, so it is super important to get it right when entities are undertaking this process for the first time or varying their licences. The more complicated the application e.g. market making, or retail funds, the more skill that is required.
one for the purists, ASIC has released its
4. Trustee expenditure:here.
Prudential Standard SPS 515 Strategic Planning and Member Outcomes is being amended by APRA, including in respect of: trustee expenditure of member funds, and its alignment with the 'best interests' duty; management of financial resources, including around fee setting and managing member-funded reserves; and, the transfer of members in and out of funds. A copy of the discussion paper is
5. Suspicious trading: IB) has paid a $832,500 penalty for ‘negligent’ and ‘reckless’ conduct following an infringement notice from the Market Disciplinary Panel. In essence, IB allegedly failed to identify suspicious trading conducted by one of its clients, and was reckless in that it allowed this trading activity to continue to occur after ASIC had raised concerns about the client. ASIC also raised concerns about IB's necessary organisational and technical resources to comply with the law. The client implicated actively traded in Orthocell Ltd shares, and their Closing Single Price Auction orders were odd for a number of reasons, including: that they were entered or amended late; were for a very small volume and value; they returned or held the price for the shares to or at the high of the day, and, they were inconsistent with the client’s previous trading.
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‘ASIC’s action should be a reminder of the importance to comply with the design and distribution obligations so that financial products are distributed to consumers appropriately' (ASIC Deputy Chair Sarah Court)
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