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. 

Subscribe here: ONLINE LINK

1. ASIC warns governance gap could emerge in first report on AI adoption by licensees: With the speed at which artificial intelligence (AI) is being incorporated into practice, ASIC is urging financial services and credit licensees to ensure their governance practices are up to date. ASIC’s first state of the market review of the use and adoption of AI by 23 licensees in the retail banking, credit, general and life insurance and financial advice sectors, found there was potential for governance to lag AI adoption. In order for licensees to meet future challenges posed by technology, ASIC Chair Joe Longo says that it is crucial to make sure governance frameworks are updated for the planned use of AI. He says that around 60% of licensees are intending to increase their AI usage. ASIC has found that nearly half of licensees did not have policies in place that considered consumer fairness or bias, and many did not have policies governing the disclosure of AI use to consumers. Mr Longo also discourages licensees from waiting for AI laws and regulations to be introduced, but rather, urges them to consider their existing obligations and duties when it comes to the use of AI. Mr Longo warns us that lack of appropriate governance could lead to misinformation, unintended discrimination or bias, manipulation of consumer sentiment and data security, and privacy failures. In turn, these could lead to consumer harm and damage to market confidence. Addressing the poor use of AI is a key focus area of ASIC’s most recent Corporate Plan.

2. ASIC sues Oak Capital alleging unconscionable conduct designed to avoid the National Credit Code: Oak Capital (Oak Capital Mortgage Fund Ltd and Oak Capital Wholesale Fund Pty Ltd) has allegedly engaged in unconscionable conduct to avoid the National Credit Code (the Code). Specifically, ASIC alleges that from 7 March 2019 to 4 October 2023, Oak Capital made up to 47 loans totalling over $37 million under a model designed to avoid the Code’s application and the National Consumer Credit Protection Act 2009 (the Credit Act). ASIC Deputy Chair Sarah Court said, ‘…Oak Capital deprived its clients of important consumer protections, including responsible lending obligations, the right to make a hardship application and protection from being charged excessive fees and interest.’  She also emphasised that in the current financial climate where borrowers are more likely to be at risk of serious financial hardship, these protections are more necessary than ever. Some of the activities in which Oak Capital engaged are providing loans to companies – rather than the individuals requiring the loan – to avoid the operation of the Code and the Credit Act, in circumstances where Oak Capital knew, or ought to have known, that the loan was for a domestic, personal or household purpose (for example, a home loan) and would otherwise be captured by the Code. As a result of their practices, and difficult financial circumstances, several individuals defaulted on their loans and Oak Capital repossessed their homes.

3. Federal Court finds HCF Life contract terms was liable to mislead the public: The Federal Court has found that a ‘pre-existing condition’ term in certain HCF Life Insurance Company Pty Ltd (HCF Life) policies was liable to mislead the public. Three contracts issued under HCF Life’s ‘Recover’ range of products used the term, which ASIC alleged could mislead the public for the following reasons: (1) it purported to allow HCF Life to deny coverage if a customer did not disclose a pre-existing condition before entering the contract; (2) it suggested that HCF Life could deny coverage even if the customer was not aware of the pre-existing condition when entering into the insurance contract; and (3) section 47 of the Insurance Contracts Act prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the customer was unaware of the condition when taking out the insurance. The matter is due back in Court on 8 November 2024 for case management where ASIC will seek penalties for misleading conduct.

4. ACCC Chair speaks about framing the future of financial services: ACCC Chair Ms Gina Cass-Gottlieb recently spoke about significant changes happening in the financial services sector and how they might impact the ACCC’s work. She discussed (1) the ongoing need to protect, assist and inform consumers, and promote competition, in economically challenging times; (2) how the rise of the digital economy is fundamentally transforming the way financial services operate and will continue to shape the future of the ACCC’s work in this space; and (3) climate change and the ACCC’s work in the insurance market to understand its effect on consumers living in areas of greatest risk. Some areas in which there have been recommendations are tackling excessive card surcharging, strengthening consumer engagement with the Consumer Data Right, enforcing competition law, reforms to merger control in Australia to better identify and prevent anti-competitive transactions before they happen, prohibiting unfair trading practices, disrupting and preventing scams, navigating declining cash use in the economy, monitoring innovations and developments in the financial services sector to ensure that ACCC continues to protect consumers and promote fair competition in the evolving landscape, and protecting consumers in the face of climate change.

International perspective: Irrespective of who wins the US election, digital assets is on a positive trajectory in terms of political, investment and regulatory support. Between the two candidates though, Trump, offers the greatest boost to digital assets. He has promised regulatory reform, to hold a portion of the US treasury in BTC and to engage in digital asset mining in the USA. Harris, with her House colleagues, has promised regulatory reform. We have expanded on the differences, and how they affect Australia, in this week's The Australian paper.