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. Australians being urged to directly seek financial hardship assistance from their bank or lender: New research released by ASIC’s Moneysmart has found that cost of living pressures, reduced income and unexpected expenses have meant that 47% of Australian adults with debt (5.8 million people), have struggled to make repayments in the last 12 months. Despite this, 3 in 10 Australians say they would not seek a hardship assistance arrangement from their bank or lender, and would rather sell their belongings and assets or get a second job before doing so. The findings have highlighted that lack of awareness of available assistance programs and emotional barriers are stopping Australians from asking for help. Some Australians also reported being worried that seeking hardship assistance arrangements would cost them more in the long run or negatively impact their credit scores, and some did not think their lender would do much to help. ASIC Commissioner Alan Kirkland says these recent findings should be front of mind for lenders when supporting Australians in financial hardship. ASIC is now following up with lenders about the actions they will take to improve their processes for supporting customers experiencing financial hardship.

2. Block Earner relieved from liability to pay penalty for offering unlicensed crypto-related product ‘Earner’: Although the Court found Block Earner’s contraventions related to unlicensed financial services when it offered its crypto-related Earner product to be serious, the Court relieved Block Earner from liability to pay a penalty, on the basis that it acted honestly and not carelessly when it offered the product. ASIC was concerned that Block Earner offered the Earner product without an Australian financial services license, leaving consumers without important protections, and operated an unregistered managed investment scheme with respect to the product. On 9 February 2024, the Court found that Block Earner had provided unlicensed financial services and operated an unregistered managed investment scheme when offering its Earner product from March to November 2022. However, on 4 June 2024 the Federal Court ordered that the defendant be relieved pursuant to s 1317S(2) of the Corporations Act 2001 (Cth) from liability to pay a pecuniary penalty in relation to the contraventions of s 911A(5B) and 601ED(8) of the Act. A somewhat surprising decision, reflecting the unique facts of the case, our sense is that this case is likely to be an exception in terms of the lack of penalties, where unlicensed financial services activity occurs… 

3. Budget funding for ASIC has been announced: At the Senate Economics Legislation Committee, 2024-2025 Budget Estimates, 4 June 2024, ASIC Chair Joe Longo announced that ASIC has received additional funding in multiple key areas from this year’s Federal Budget. This includes funding to stabilise and uplift legacy business registers. ASIC will also implement a new ‘threat intelligence platform’ to improve information collection and real-time detection of internal and external cyber threats, and continue to focus on the responsible use of emerging technologies such as artificial intelligence, machine learning, big data, predictive coding and cyber protection tools. ASIC has already commenced a digital transformation program that received initial funding in the recent federal budget to secure ASIC’s regulatory systems. In addition to these key areas, ASIC has also been provided funding to contribute to fighting scams, promoting sustainable finance, modernising digital assets, regulating and promoting the proposed new beneficial ownership transparency requirements, and supporting the continuation of the website for consumers in North Queensland to compare home insurance policies. 

4. APRA fines Equity Trustees for failing to meet data reporting requirements: Equity Trustees Superannuation Limited (ETSL) has been fined $782,500 for failing to meet its legal obligations to report data to APRA. By failing to report data by the required deadlines for two funds under its trusteeship, ETSL breached the requirements of the Financial Sector (Collection of Data) Act 2001. For the quarter ended 30 September 2023, ETSL lodged nine reporting forms 50 days late for AMG Super and six reporting forms 38 days late for Super Simplifier. APRA has emphasised that accountability for meeting regulatory obligations sits with trustees, and that they should ensure that service providers are adequately resourced to meet requirements. ETSL has until 3 July 2024 to pay the fine. 

International perspective: controls - the mechanisms designed to ensure compliance frameworks are working - are critical, oft-times complicated to build/maintain and an increasing focus on global regulators. In the UK, Citi has just been fined GBP 28M for failures in the firm’s systems and controls leading to equities being sold in European markets when they should not have been. On 2 May 2022, a Citi trader had intended to sell a basket of equities to the value of US$58m. The trader made an inputting error while entering the basket in an order management system. This resulted in a basket to the value of US$444bn being created. Citi's controls blocked US$255bn of the basket progressing, but not the remaining US$189bn which was sent to a trading algorithm. The algorithm selected was designed to place portions of this total order to be sold in the market over the rest of the day. An expensive inputting error, which had ineffective controls e.g. pop up windows the trader was able to manually over-ride, and no ‘hard block’ on the obviously erroneous trade. One to keep in mind in design and testing effective controls!