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 key developments from the past week for you to consider. 

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1. Sophisticated investor test: The financial test for sophisticated investors (who can invest in more complex products) has not changed in decades; the Government is proposing to raise the threshold to $450,000 in income or $4.5M in net assets as part of its review of the managed investment scheme framework, which had dominated media headlines this week.  It is a bad idea in isolation.  In a recent submission, we proposed that the Government should build on existing regulatory infrastructure, and addresses the core issue – skills. There should be an exemption for the asset threshold for those who: (1) undertake an ASIC-approved education course, similar to ASIC RG 146; or, (3) can demonstrate sufficient ASIC-approved time in a vocation or educational qualification which lends itself to investment, operations, risk, compliance, analysis or legal experience i.e. so they can undertake their own risk assessment of products.  This builds on the existing tests for Responsible Managers, and the AFSL B1 Proofs that ASIC requires; or, (3) complete a robust test by the issuer / distributor of the product, with ASIC able to set criteria for the content / audit and place penalties on the organisation if it does not comply.  This builds on and can be integrated within the Design & Distribution Regime.  If nuance is not added to the regime, then younger and less economically able investors will have reduced access to high quality investments.  Please get in touch if you'd like a copy of our submission on this point, which focuses on this area in the context of fractionalised trading under blockchain technology.  

2. P2P digital currency trading: there are a lot of cryptocurrency exchanges which offer P2P trading. A P2P crypto exchange is a decentralized platform that allows people to trade without any intermediaries. It's different from a traditional crypto exchange because there's no central authority involved. Buyers can facilitate trades with each other on their own terms.  Here is the problem issue we are seeing - depending on the nature of the traders' operations, they could also be running an illegal digital currency exchange.  A digital currency exchange provider is an individual, business or organisation that exchanges fiat money (Australian or foreign currency) for digital currency, or digital currency for money (Australian or foreign currency), as part of operating a digital currency exchange business. Digital currency exchange providers must be registered with AUSTRAC. If you are P2P trading on crypto exchanges, and making good money on the spread by arbitraging - please do get proper legal advice on whether you might be caught. 

3. Super prudential amendments: APRA has released several updates to the prudential framework for superannuation as a result of legislative reforms in relation to the financial reporting and audit requirements for superannuation.  They cover SPS 310 - Audit, SPS 510 - Governance, SPS 520 - Fit & Proper, and PPG 520 - Fit & Proper. They are not major, but they do need to be considered in the context of FAR and CPS 230 implementations e.g.  APRA has replaced the terms ‘auditor’ and ‘actuary’ with ‘RSE auditor’ and ‘RSE actuary’ as defined in the SIS Act and clarified that the requirement to invite the RSE auditor to the meetings of the Board Audit Committee relates to the individual RSE auditor or lead auditor - no delegations here. Submissions close on 28 February 2024. 

4. Contempt action: it is a criminal offence to operate an unlicensed financial services business (and digital currency exchange, as we have covered above!).  It is also criminal to disregard the Court's orders, which is why ASIC is seeking contempt of court charges against a man accused of running financial services businesses after the court prohibited him from doing so (see here).  It is a good move, and underscores ASIC's willingness to follow through with taking unlicensed financial services firms out of the market to protect consumers. 

5. Global perspective: a great speech by Nikhil Rathi, Chief Executive of the UK FCA on making consumer tech a force for good.  In it, he noted that globally the world is at a global inflection point in the rise of technology in financial services and the FCA must use and adapt its existing regulatory tools to protect consumers and markets while making sure it continues to embrace innovation.  We know that regulators are adopting big data processors, and AI - their adoption of blockchain technology in an operational sense seems only a matter of time.  Another point which jumped out at us in the speech is the potential of technology for financial inclusion e.g. central bank digital currencies, but also exclusion.  Mr. Rathi stated “Hyper-personalisation [of financial products] could mean more groups become ‘too hard to bother with’ for firms, entrenching, rather than reducing, financial exclusion. Not least as huge gaps remain in financial literacy.”

Learn more about our global regulatory and investigations team here.