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. Unfair contract terms:  ASIC has not succeeded in its unfair contract terms case against Auto & General Insurance Company Ltd (“A&G”) relating to terms in a home and contents policy, clarifying the law for industry and consumers. ASIC alleged that the “duty to disclose” provisions contained in 1.3 million insurance contracts issued by A&G were unfair pursuant to s 12GB(1) of the Australian Securities and Investments Commission Act 2001 (Cth). The term in question required an insured to notify A&G “if anything changes” about their home or contents, and that if they failed to do so A&G “may reduce or refuse to pay a claim”.  Jackman J dismissed ASIC’s case, finding that this term was not unfair at law. Although the term would cause detriment to the insured if it was relied on by A&G, it did not create an imbalance (let alone a substantial imbalance) in the rights and obligations of the parties. The duty to disclose any changes was “simply a reflection of the nature of the contract”. His Honour also held that the term was reasonably necessary to protect A&G’s legitimate interests. An insurer has a legitimate interest in being able to choose which risks it will insure against, and the information-gathering process ensures that it is not covering risks it is unwilling to insure. In relation to transparency, his Honour noted that in circumstances where a term is reasonably necessary to protect an insurer’s legitimate interests, the “lack of transparency in the term does not yield any different result”.

2. ACCC v Bloomex Pty Ltd [2024] FCA 243: the Federal Court of Australia has imposed civil penalties totalling AUD $1M on Bloomex Pty Ltd, one of Australia’s largest online floristry and gift retailers, for breaches of the Australian Consumer Law. The ACCC commenced proceedings against Bloomex in December 2022, following an industry warning in February 2022 and an ACCC investigation into Bloomex’s practices in March 2022. The Court found that Bloomex had contravened ss 18, 29(1)(a) of the ACL (in relation to “standard” and “quality”), (i) (in relation to “price”), (g) (in relation to “approval”, “performance characteristics”, “uses” and “benefits”), and 48(1) by representing that (i) that its products were on sale or discounted, when in fact they were not, (ii) that the star ratings on products were a reliable indicator of customer satisfaction, when they were not, and (iii) that its products could be purchased for a specified price, when in fact a surcharge would be applied at checkout. For financial services organisations, the requirements to be clear in advertising are arguably even higher given s 12 of the ASIC Act and general AFSL / ACL obligations.  Undertake those marketing reviews!

3. ACCC continues to investigate general search services: the ACCC has released an issues paper on general search services that consumers use to navigate the internet and search for information. The paper, part of the ACCC’s five-year inquiry into digital platform services, seeks submissions on the current nature of general search services in Australia, including regulatory and industry developments, and potential competition and consumer issues. This includes how market dynamics have changed since the ACCC’s report on search defaults and choice screens in 2021. The ACCC will investigate the current state of competition in this space, and factors influencing the current competitive landscape, including international legislative reform and the emergence of new technologies. The ACCC will also investigate trends in search quality over time. Submissions close on 17 April 2024, and the ACCC is scheduled to issue its ninth report into digital platform services to the Treasury by 30 September 2024.

4. Sophisticated investor changes: the Parliamentary Joint Committee on Corporations and Financial Services has established an inquiry into the Corporations Act 2001 laws and related regulations on the wholesale investor test for offers of securities (Section 708 of Chapter 6D) and the wholesale client test for financial products and services (Sections 761G & 761GA of Chapter 7) – submissions are due by 15 May.  The inquiry, which Clyde & Co will prepare a submission on, will: review the current wholesale investor/client tests; compare with comparable overseas jurisdictions; consider any proposals to change the wholesale investor/client tests; and, any potential adjustments to proposals to change the wholesale investor/client tests to address the concerns of stakeholders. The new proposed sophisticated investor test which precipitated this inquiry – raising the existing thresholds to AUD $450K in annual earnings or AUD $4.5M in net assets - is something that needs work in our view. It will disproportionately impact Gen Z and lower socio-economic investors, who may be highly financially savvy, in building the capital. It will materially curtail their investment in cheaper and more innovative digital assets e.g. tokenised equities, venture funds and structured products. Financial sophistication is necessary for investors' protection, together with all the working regulatory infrastructure - ASIC and the consumer groups are right there, but simply having a large bank balance - as we argued in our past submission (see here) by itself should not be the only test. 

International perspective: The Monetary Authority of Singapore, the regulator and supervisor of financial institutions in Singapore, has announced imminent updates to its Guidelines on Fair Dealing in coming weeks as “treating customers right” comes into renewed focus. The revised guidelines will apply in a risk proportionate manner to all financial institutions and cover every type of financial product and service offered to customers from initial product design principles through to the post-sales phase. In clear parallels with the direction of prudential oversight overseas, the Deputy Managing Director (Financial Supervision) of the MAS emphasised: “the tone from the top is critical to drive the right culture, where treating customers fairly and well are at the heart of all that you do. Board and senior management must send a clear signal that profits do not come before values and ethics. Compensation structures must motivate not just high performance but also right conduct. Treating customers right must include an engaged board and senior management who will model what it means to treat customers right in every area of business, and who will hold staff accountable.” 

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