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. ASIC flags misconduct in banking and superannuation sectors as an enforcement priority: ASIC has released its enforcement and regulatory update for 1 January to 30 June 2024, highlighting its enforcement and regulatory outcomes for that period. The report also highlighted ASIC's focus on misconduct in the banking and superannuation sectors moving forward. In the report, ASIC Chair Joe Longo stated that "We are actively considering further regulatory and enforcement action related to the issues our review [into lenders’ support of customers facing financial hardship] identified" and "we expect the superannuation and financial advice industries to do everything possible to promote informed and confident investment decision making by members and, in particular, address conduct that inappropriately erodes members’ retirement savings". The report noted that during 1 January to 30 June 2024, ASIC was successful in 95% of its civil and criminal prosecutions, securing $32.2 million in civil penalties and nine criminal convictions, as well as launching 63 new investigations, commencing 12 new civil proceedings and completing 550 surveillances throughout the period. 

2. ASIC updates Regulatory Guide 274 Product design and distribution obligations: ASIC has updated Regulatory Guide 274 Product design and distribution obligations to provide greater clarity around ASIC’s guidance on the appropriateness requirement for target market determinations.  ASIC noted that the changes to RG 274 will not require product issuers to update their TMDs (though it is always a good idea to have regular refreshes!). The changes are: (1) adding a note to cover the inclusion of 31-day term deposits as a basic banking product for the purpose of the DDO regime, (2) adding a note to refer to the modifications, clarifications and exemptions to the DDO regime provided under the ASIC Obligations (Design and Distribution Obligations Interim Measures) Instrument 2021/784, (3) adding a note to clarify that giving a disclosure document or PDS in the course of providing personal advice is excluded conduct for the purpose of the DDO regime, (4) clarifying the TMD appropriate requirements to make clear that the appropriateness requirement is an objective test, rather than one that is satisfied by the issuer including information in a TMD addressing the appropriateness requirements, (5) removing a note that was an interim measure which exempts employers as distributors when providing a PDS for their default fund product to employees, and (6) removing an outdated reference to the now withdrawn RG 165 and (7) adding a note that says "‘Excluded conduct’ also includes the giving of a disclosure document or PDS in the course of providing personal advice about a financial product". The updates come following ASIC’s surveillance of 19 issuers of high-risk investment, insurance and credit products between October 2023 and August 2024, which found that many issuers had limited due diligence arrangements to assess and monitor third party distributors, some issuers of high-risk products were relying on broad search terms in online marketing, many issuers used poor quality consumer questionnaires and only a few issuers monitored consumer outcomes and product performance. To date, ASIC has issued 88 interim stop orders and one final stop order under DDO. 

3. Australian Government introduces voluntary AI principles for businesses to follow in its Voluntary AI Safety Standard: The Australian Government has released the Voluntary AI Safety Standard, which gives practical guidance to all Australian organisations on how to safely and responsibly use and innovate with artificial intelligence (AI). The AI Standard introduces 10 voluntary guardrails that apply to all organisations throughout the AI supply chain, which includes testing, transparency and accountability requirements across the supply chain. They also explain what developers and deployers of AI systems must do to comply with the guardrails, and comes at the same time the US SEC is warning businesses about “AI washing” (which is similar in concept i.e. potentially misleading and deceptive behaviour, as “Greenwashing”).

4. AML/CTF Amendment Bill 2024 introduced to expand regime to ‘tranche-two’ entities including lawyers and accountants: Major news, which has been very long awaited!  The Australian Government has introduced the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth). The Bill expands the current AML/CTF regime to 'tranche-two' entities, including lawyers, accountants, real estate professionals and dealers in precious stones and metals. The Bill will bring Australia into line with international standards set by the Financial Action Task Force (FATF). Currently Australia is one of only five jurisdictions out of more than 200 that do not regulate those 'tranche-two' entities. Affected businesses need to start preparing now. 

International perspective: The FCA has set out good practice and areas for improvement to help principal firms effectively monitor their Appointed Representatives (ARs). The FCA found some firms were taking a tick-box approach to complying with its rules, relying on basic information like website checks, or using self-declarations from their ARs, to demonstrate effective oversight. ARs are essentially the same as “Authorised Representatives" in Australia, and have similarly been a focus of ASIC in recent years, the most famous one being the action against Lanterne (see here).