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. Choice products: ASIC has published a report calling out a risk of Australians investing in persistently underperforming super options. It has told super trustees, financial advisers, and financial advice licensees to more consistently focus on the performance of Choice super investment options. ASIC has said that it expects trustees to: 1) prioritise investment performance throughout the product lifecycle; 2) have systems in place to detect and address persistent underperformance; 3) regularly monitor investment option performance against return objectives and benchmarks; 4) ensure they have sufficient capacity to manage investment options, including clear and comprehensive policies, resources, and data reporting arrangements; 5) effectively communicate with members about performance, which could include targeted communications and comparisons of actual returns to return objectives; and, 6) act in response to sustained underperformance to minimise member risks. A tough balancing act for super funds, as they face political pressure i.e. “Invest in residential housing!” and ESG pressure i.e. “Invest in green investments!”, while trying to maintain good returns for members.
2. Predatory lending / directors duties: The corporate regulator will hold directors accountable in areas of emerging consumer harm, ASIC Deputy Chair Sarah Court, has signalled to the market. Interestingly, it signals a potential expansion of directors duties' cases, with Ms Court stating “This year, in particular, ASIC will increase its focus on high-cost credit and predatory lending to consumers and small business…We are particularly concerned where it appears business models have been designed to avoid consumer credit protections.” Those in the non-bank lending sector - which is rightly growing with the banks' becoming more conservative - need to take note.
3. ACCC: The Australian Competition Tribunal has overturned the ACCC's decision to deny ANZ and Suncorp Bank’s application for merger authorisation in August 2023. The ACCC had originally denied the merger, on the basis that it was not satisfied that it would not lessen competition in the market. The ACCC was also not satisfied that the acquisition would be likely to result in a net public benefit e.g. efficiencies, synergies, prudential stability, and ANZ’s specific commitments to invest in Qld. The Tribunal has not published reasons yet, though the summary published indicates a more technical, evaluative approach was taken by the tribunal on the issues of competitive effects.
4. Gen Z women: ASIC's Money smart website has conducted research which indicates that Gen Z women are more likely than Gen Z men to feel stressed and overwhelmed by finances and money. Moneysmart’s research shows that Gen Z women are: 1) more likely than Gen Z men to be severely stressed about the cost of living (87% to 77%); 2) more likely than Gen Z men to feel overwhelmed by finances (57% compared to 41%); 3) less likely than Gen Z men to research ways to grow their wealth (14% compared to 21%); 4) more likely than Gen Z men to have no personal savings (11% compared to 4%); 5) and, more likely than Gen Z men to use buy-now-pay-later services (32% compared to 25%).
5. International perspective: The Hong Kong Monetary Authority has published its consultation paper on implementing the Basel Committee’s standards for the regulatory capital and prudential treatment of banks’ cryptoasset exposures. The standards prescribe how much regulatory capital banks must hold for their crypto exposures, and while it is a technical (but worthwhile read!) there are two key points to be made for this blog: 1) in HK, unbacked crypto assets (such as Bitcoin) and stablecoins with ineffective stabilisation mechanisms will be subject to a conservative regulatory capital treatment; 2) this is a giant (albeit, slightly less splashy than a BTC ETF!) leap forward for crypto, legitimising banks' holding of these assets as prudential buffers, and can be expected to be watched closely by prudential regulators around the world.
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"Australians trust their super funds and financial advisers to ensure they’re getting the best possible returns on their super savings. We expect funds and advisers to ensure that trust is not misplaced" (ASIC Commissioner Simone Constant)
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