Australia: Finance and banking financial services monthly wrap up – December 2018 and January 2019


ASIC has released its Consultation Paper 308, Review of RG 97 Disclosing fees and costs in PDSs and periodic statements. The proposed changes, to which the industry will now respond, seek to make fees and costs disclosure simpler and more accessible for consumers.

With effect from 1 January 2019, new training and education standards apply to individuals that are authorised to provide personal financial advice to retail clients.

Revised exposure draft legislation in relation to the proposed Corporate Collective Vehicle (CCIV) regime has been released for consultation.

More information on these developments, as well as other industry news, can be found below.


1. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

With the final round of hearings having concluded in November, the industry is awaiting the publication of the Royal Commission report. The final report was submitted to the Governor General by 1 February 2019. We will provide a further update once the report has been released.

More information can be found here.

2. New draft legislation has been released for the proposed CCIV regime

On 17 January 2019, Treasury released revised exposure drafts for consultation of both the regulatory and tax legislation for the Corporate Collective Vehicle (CCIV) regime. The consultation period is open until 28 February 2019.

The draft regulatory legislation contains the core provisions for the establishment of CCIVs and their operational and regulatory requirements as well as amendments to other legislation to support the implementation of CCIVs.

Key changes in the core regulatory provisions include:

(1) the independence requirements for the depositary have been simplified so that the depositary cannot also be an entity directing investment decisions for the CCIV; and
(2) the process for changing the depositary no longer requires a shareholder meeting, although shareholders still have a right to take action to change the depositary.

More information regarding the consultation period and the draft legislation materials can be found here.

3. Productivity Commission hands down superannuation report

On 10 January 2019, the Productivity Commission’s report into Australia’s superannuation system was publicly released after having been handed to the Federal Government on 21 December 2018. Recommendations in the report include:

  • the introduction of a ‘best in show’ shortlist of up to 10 superannuation funds be established;
  • changes to the process for default superannuation accounts, so that individuals are only ‘defaulted’ once at the beginning of their careers;
  • changes to the definition of advice in the Corporations Act (which would affect the financial services industry more broadly); and
  • changes to offering of insurance within superannuation.

The Government is expected to respond to the report following receipt and consideration of the recommendations expected to be in the Royal Commission’s report.

More information and access to the full report can be found here.

4. ASIC publishes consultation paper on fees and costs disclosure

On 8 January 2019 ASIC released Consultation Paper 308 Review of RG 97 Disclosing fees and costs in PDSs and periodic statements (CP 308). The consultation paper includes a proposed updated Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements, and draft amendments to Schedule 10 of the Corporations Regulations. CP 308 is ASIC’s response to the recommendations prepared by independent expert, Darren McShane in his external expert review Report 581 released in in July 2018.

CP 308 sets out the recommendations from McShane’s report that it proposes to adopt and which recommendations ASIC does not propose to adopt at this time.

Among the proposed changes are updates to the treatment of transactional and operational costs and the introduction of a ‘cost of product’ concept, together with some proposed changes to the format of disclosure in PDSs, including the fee template table. We are working closely with industry groups during this consultation period. Please contact us if you would like more information on these proposals.

Submissions on CP 308 are due by 2 April 2019.

More information can be found here.

5. ASIC to introduce changes to the education and training requirements now covered by Regulatory Guide 146

As of 1 January 2019, new standards apply to individuals who are authorised to provide personal advice to retail clients. For newly authorised individuals, Regulatory Guide 146 Licensing: Training of financial product advisers will no longer apply and instead the standards set out in Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 and as determined by the Financial Adviser Standards and Ethics Authority apply.

There is a transitional period to comply with the new standards that is available to individuals that were authorised by an AFS licensee to provide personal advice prior to 1 January 2019. This transitional period generally does not apply to individuals newly appointed to provide personal advice to retail clients or employed by an AFS licensee after 1 January 2019. There are also carve-outs from the requirements if the advice provided is limited to basic banking products, general insurance products, consumer credit insurance or a combination of these products.

More information can be found here.

6. ASIC temporarily extends disclosure related relief for superannuation funds

On 19 December 2018, ASIC extended the ASIC relief instrument ASIC Class Order [CO 14/541]. The instrument provides relief from section 29QC of the Superannuation Industry (Supervision) Act 1993 which provides that if a superannuation fund trustee gives information to APRA under an APRA reporting standard, and the trustee gives the same or equivalent information to another person, or on a website, the fund trustee must ensure that the information is calculated in the same way as the information given to APRA.

The relief instrument was previously due to expire on 1 January 2019 and has been extended to 1 January 2024. ASIC has stated that industry should not assume that the relief instrument will continue in force until 2024.

More information can be found here. The class order can be found here.

7. AUSTRAC releases superannuation sector guidance

On 14 December 2018, AUSTRAC released guidance to educate Australia’s superannuation sector of the risks they face from criminal exploitation and how they can proactively combat financial crime. The guidance focuses on specific risks and potential scenarios relating to money laundering.

More information can be found here. The guidance can be found here.

8. High Court hands down judgment for ASIC’s successful appeal against Prime Trust directors

On 13 December 2018 the High Court handed down its judgment against a group of former directors of Australian Property Custodian Holdings Pty Ltd (APCHL). APCHL was the responsible entity of the Prime Retirement and Aged Care Property Trust (Prime Trust), which was a managed investment scheme that owned retirement villages in Queensland, NSW and Victoria. APCHL collapsed in 2010 owing $550 million to investors.

ASIC commenced proceedings in August 2012 when challenging a decision by the APHCL’s board to amend the constitution of the Prime Trust to amend various fees payable to a related company of one of the directors. Having moved through the Federal Court and Full Federal Court on appeal, the High Court found in favour of ASIC’s appeal. In doing so, the High Court concluded:

  • There is no concept of ‘interim validity’ in the Corporations Act. In effect, this means that an unlawful amendment to a constitution does not operate lawfully in the period between lodgement with ASIC and it being eventually set aside by a Court.
  • A director’s subjective belief as to validity of the kind of amendments mentioned above does not absolve breaches of director’s duties.
  • It is a ‘member’s right’ to have a scheme administered in accordance with its constitution.

In overturning the Full Federal Court, the High Court reinstated the penalties delivered by Murphy J at first instance in the Federal Court, including disqualifications from managing a company and significant fines for the directors in question.

More information can be found here and here.

9. APRA releases new requirements for registrable superannuation entity (RSE) licenses

On 12 December 2018 APRA released a package of new and updated prudential standards and guides, including an updated SPS 220 Risk Management and new SPS 5151 Strategic Planning and Member Outcomes.

It is intended that the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 will sit alongside these new requirements by introducing a legislated outcomes assessment, assuming it passes when parliament resits in February.

The new standards will commence on 1 January 2020.

More information can be found here.

10. ASIC research highlights need for improved consumer complaints experience

On 10 December 2018 ASIC released the results of its research into the consumer experience of internal dispute resolution (IDR) procedures across the financial services sector. The research sought to better understand the experience of people thinking about or making a complaint to a financial services firm and the perceived barriers or difficulties faced in making a compliant.

In terms of next steps, ASIC has recommended that all financial firms closely review the findings and consider whether IDR procedures should be updated. ASIC is also conducting onsite visits to assess certain firms IDR arrangements. From February 2019, ASIC will be publicly consulting on Regulatory Guide 165, which covers both internal and external dispute resolution and on proposed data collection and reporting frameworks in this area.

More information and the key findings of the research can be found here.

11. ASIC reports on decisions to cut red tape – April 2018 to September 2018

On 6 December 2018 ASIC released its latest report outlining decisions on relief applications for the period April 2018 to September 2018. The purpose of the report is to provide transparency about ASIC’s decision making by providing examples of where ASIC has exercised or refused to exercise its exemption and modification power under the Corporations Act and National Credit Act. The report also contains links to all legislative and relief instruments made by ASIC during the period in relation to areas such as managed investment relief, disclosure relief and AFS licensing relief.

During the period ASIC notified a foreign financial services provider that it was excluded from relying on class order relief from the requirement hold an AFSL on the basis that ASIC was not satisfied that the entity was sufficiently regulated in the United States of America.

The report can be found here.

12. ASICs new industry funding model

On 5 December 2018 ASIC published its regulatory costs for the 2017-2018 financial year. ASIC has calculated that levies payable by industry to recover its regulatory costs total around $236.6 million for that financial year.

ASIC will now use the business metrics submitted by regulated entities in 2018 to calculate each entity’s share of the regulatory costs for the sectors in which they operate and issue the first invoices under the new industry fund model.

We understand that ASIC intends to issue finalised invoices in early 2019.

More information can be found here. The summary of levies can be found here.

13. ASIC announces major financial reporting changes

On 3 December 2018 ASIC announced a new focus area, based on new accounting standards that will likely result in major changes to financial reporting. Financial reports at 31 December 2018 were required to comply with these new accounting standards.

We understand that the changes to accounting standards affect how and when revenue is recognised, the values of financial instruments (including loan provisioning and hedge accounting), reported assets and liabilities relating to leases, accounting by insurance companies and how assets, liabilities, income and expenses are reported generally.

As part of its announcement ASIC emphasised that directors are primarily responsible for the quality of financial reports which includes ensuring that appropriate experience and expertise is applied and that there is sufficient processes, records and analysis to support the information in reports.

More information can be found here.

14. Penalties bill passed the House of Representatives and introduced to the Senate in December

On 3 December 2018 the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 passed the House of Representatives and was introduced to the Senate.

The Bill would introduce a stronger penalty framework in relation to corporate and financial sector misconduct. In particular, the Bill makes amendments to current legalisation to introduce criminal offences to sit alongside strict and absolute liability offences, increase the maximum imprisonment penalties for certain criminal offences and remove imprisonment as a penalty for other offences, while increasing the financial penalties for all strict and absolute liability offences

Information about the Bill can be found here.

15. Whistleblower protection Bill passed by Senate with amendments

In December 2018, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 was introduced and debated by the Senate with a number of amendments being made.

The Bill contains an updated whistleblower protection regime and among other provisions will require certain Australian business to have a whistleblower policy. If the legislation passes, the expanded regime will commence on 1 July 2019. Public companies and large proprietary companies will then have 6 months to implement compliant whistleblowing policy and procedures.  

Information about the Bill can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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