Australia's current financial services regulatory & 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. Third parties / s 912A: Diversa, a super fund, did not fail to act “efficiently, honestly and fairly” or “fail to take reasonable steps to ensure its representatives complied with financial services laws” the Federal Court has found in Australian Securities and Investments Commission v Diversa Trustees Limited [2023] FCA 1267.  ASIC alleged that Diversa knew or ought to have known of certain “vices” in relation to the business practices of a particular adviser group who joined members to the fund, and that engaged its general AFSL duties.  The Court found otherwise, finding that the requisite connection had not been met - see [370] of the judgment onwards - stating: “Nevertheless, an immediate, and fatal, flaw in ASIC’s case is that it has not established what financial services the OneVue Entities were in fact providing, in respect of which a risk of noncompliance with s 912A(1)(a) may have existed. While ASIC’s pleaded case (FASOC [70]– [71]) referred to financial services that were “covered” by the AFSLs held by the OneVue Entities, for reasons already canvassed, I do not accept that s 912A(1)(a) is concerned with services that may be offered (as distinct from services that are offered) by a Licensee. As I have set out above in relation to ASIC’s second alleged s 912A(1)(a) contravention, ASIC has not established that the OneVue Entities gave general financial product advice.” ASIC is considering the judgment - it may appeal - and the facts are highly fact specific here. Query whether the same result would occur under FAR's broader obligations, especially given the recent UK precedent where a bank CIO was found personally responsible for not monitoring an outsourced IT provider. See that case here. 

2. FAR ADI Roundtable: We attended the (non-confidential) APRA / ASIC session on FAR for ADI's this week.  Our key points: *) expect the Regulators’ rules before end of year, provided Ministers Rules’ finalised first. Circa November 2023; *) APRA / ASIC are still pushing ahead with the “Prescribed Authorised Function” (PAF) concept. The PAFs are non-exhaustive list serving as prompt for things to be covered. Changes to PAFS are likely a prompt to submit a revised AP statement to regulators under FAR legislation; *) SREs are new under FAR. Particularly relevant for global insurers, dis-aggregated organisations and RSEs. Need to do assessment similar to CPS 231 materiality assessment. Apply financial and non-financial lens. Consider “Reputational impact on group as a whole for SREs”;  *) there will be transitional and the "pre-commencement activities" from November 2023. Expect the regulators to be active here. Same then for other prudential entities in due course; *) joint administration of regime. ASIC is focused on conduct, but can have information under APRA’s powers. Need to read the MOU online; *) formal submission of registration of AP statements in February. Mid November is pre-commencement activities, and regulators encourage submission of draft statements from then though; *) RSE, LIs GIs can expect engagement from the regulators – they are eager to engage. Looking to host general FAR webinar in December 2023. Detailed pre-commencement webinar early 2024. Consultation paper early next year. First quarter next year for key functions i.e. for GIs, LIs and RSEs. Second quarter of next year for finalised functions for GIs, LIs and RSEs; *) can an externally engaged appointed actuary be an AP for a GI? Not expected, but they may be an AP depending on individual circumstances. See s. 10 of the FAR act. Definition is broad. Who is an appointed actuary is not a prescribed role, but is a prescribed responsibility. Whoever has this responsibility is caught as AP, but it may or may not be the appointed actuary. That is on the GI entity to identify; *) are regulators intended to review full suites of AP documents, or representative statements? Eg what about directors who are similar? In short – yes, the regulators want to review the full suite of statements.  There will be focus on particular roles though e.g. Board Chair, and Chairs of Board committees. Please get into contact if you want our full notes, and see our dedicated FAR website. Start your ExCo and Board engagements now before the end of the year! 

3. Insurance MOU: ASIC has signed the International Association of Insurance Supervisors' Multilateral Memorandum of Understanding. The MoU provides a global framework of compliance and confidentiality to allow for open cooperation and exchange between insurance supervisors. Article 5 is the interesting one: “It is a valid purpose under this MMoU for a Requesting Authority to seek information relevant to its lawful supervision of a Regulated Entity which is subject to the supervision and responsibilities of the Requested Authority.”.

4. RSE roundtable: APRA and ASIC held a Superannuation CEO Roundtable with two focus areas for this discussion, but most interestingly on sustainable finance disclosures. In its published notes, “APRA and ASIC emphasised that the introduction of mandatory climate-related financial disclosure requirements in Australia aim to enhance transparency and boost informed decision-making by investors. Both agencies stressed the importance of preparing for this change. This involves implementing systems and processes, establishing governance practices that meet any new climate reporting requirements applying to superannuation funds, and adopting measures to prevent misleading disclosures.” The CEOs noted that staying static in this space was not feasible, while also highlighting the challenges of obtaining the right expertise internally and externally (we have an ESG team if anyone needs them!), the lack of standardised taxonomy i.e. what terms mean, ensuring investment screens operate effectively, oversight of third-party providers e.g. investment mangers, and ensuring accurate wording in all marketing materials.

5. AUSTRAC enrolment penalties: The AML/CTF Act 2006 (Cth) has recently been amended such that if a business has provided a designated service e.g. money remittance, or being a digital currency exchange for at least 28 days, but has failed to enrol with AUSTRAC, it can accrue daily penalties from 9 November 2023. These penalties continue to accrue until the business enrols or stop providing designated services. For each day a business remains unenrolled, it may be liable for a penalty of up to 12 penalty units, or up to 60 penalty units for companies. Each unit is currently $313, so the price of daily unenrolment is steep!

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