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. FAR rules: ASIC and APRA have issued the final rules and information for the Financial Accountability Regime! The regulators have: 1) removed “collections and enforcement” as an Insurance Key Function; 2) removed references that are not specific to insurance from the key function descriptions of “product origination” and “training and monitoring of relevant representatives and staff”; and, 3) refined the key function description for “insurance risk management” to remove any overlap with other Insurance Key Functions, and for “scam management” to reflect insurance entities’ operations. Many organisations are balancing the implementation with internal resources, and considering what is the de minimis external involvement (if any). Reach out if we can assist you to update your FAR work plans or with your key artefacts!
2. Whistleblower rewards: Dr Andrew Leigh, Labor frontbencher and assistant treasury minister, has spoken positively about calls to create financial rewards for corporate whistleblowers. Dr Leigh's remarks came in response to the report handed down following the Economic References Committee's investigation into ASIC. Dr Leigh endorsed the proposal to create financial rewards for corporate whistleblowers, saying that whistleblower rewards had “worked well” in overseas jurisdictions such as the US, and was one of the recommendations the Albanese government was carefully looking at. In the US, whistleblowers can receive substantial financial rewards for providing information that leads to successful enforcement actions. Under the False Claims Act, they may receive 15-30% of the recovered amount from fraud against the government. The SEC and CFTC whistleblower programs offer 10-30% of collected sanctions exceeding $1 million, while the IRS program grants 15-30% of recovered unpaid taxes, penalties, and interest if the dispute exceeds $2 million. Dr Leigh was less positive about the proposal to break up ASIC, noting that this was previously rejected by the Hayne Royal Commission in 2018. Dr Leigh said that “[It was rejected] on the basis that having a regulator looking at financial issues as well as corporate issues is able to do better intelligence sharing and therefore is potentially better able to track down misconduct”.
3. APRA updates Prudential Standard SPS 515 (Strategic Planning and Member Outcomes): SPS 515 and related guidance relate to the duties of superannuation trustees. The updated guidance now sets out (1) design principles for a robust expenditure management framework – including board oversight, alignment to strategic objectives, and active monitoring and review; (2) APRA’s view that better practice is for trustees to obtain a yearly attestation from accountable senior executive management that they are taking reasonable steps to meet the requirements in SPS 515 regarding expenditure management; and (3) APRA’s view that such an attestation should confirm that controls are in place and operating effectively to prevent expenditure that would be unjustifiable in the context of the duty to act in the best financial interests of beneficiaries.
4. ASIC is successful in its first design and distribution (DDO) case against Firstmac Limited: The Federal Court found that Firstmac Limited (Firstmac), a large non-bank lender, breached the new design and distribution (DDO) provisions by failing to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the distribution of one of its investment products being consistent with its target market determination for the product. The Court found that Firstmac implemented a ‘cross-selling strategy’ of marketing investments in its High Livez investment product to 780 consumers who held existing term deposits with Firstmac. In doing so, it breached its DDO when it sent product disclosure statements for the Firstmac High Livez product to those existing term deposit holders, without first taking reasonable steps to ensure consistency with its TMD for the product. ASIC will now seek orders from the Court imposing pecuniary penalties against Firstmac. We have summarised a list of all DDO actions - proceedings and stop orders - issued to date. Do get in touch if it will assist you!
International perspective: the rise of financial influencers, or ‘finfluencers’, has been a headache for global regulators. They are increasingly warning of the risks in media, and enforcement actions - the FCA announced this week that court dates have been set for 9 finfluencers charged by the FCA with unauthorised FX trading schemes. The risks are heightened when it comes to celebrities issuing their own products, or lending their platform to them, as is occurring with celebrity cryptocurrency tokens which we recently commented in the media on.
‘ASIC took this case [against Firstmac] because we were concerned that customers were exposed to the risk they might obtain a financial product that was not appropriate to their needs and objectives. This should act as a deterrent to anyone engaged in cross-selling financial products who fails to consider their design and distribution obligations before sending product disclosure statements ASIC Deputy Chair Sarah Court
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