Welcome to the latest edition of Financial Services Thinking showcasing the news from the corporate regulators.
We also share a 'hot tip' about ASIC being unable to 'voluntarily' refrain from publishing a notice of action in the Gazette.
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Do you comply with ASIC's DDO good practice?
ASIC continues to take enforcement action against issuers who do not meet their design and distribution obligations (DDO). On 16 May 2023, ASIC issued eight interim stop orders preventing Saxo Capital Markets (Australia) (Saxo) from issuing some new contract differences (CFDs) to retail clients because of deficiencies in their target market determinations (TMDs). The orders were revoked on 18 May 2023 after Saxo amended the TMDs to address ASIC's concerns.
We offer a full spectrum of DDO services, from advice on documents you prepare to a comprehensive in-house review of the implementation of DDO into the operations of your business.
Read our analysis of ASIC's latest Report 762 Design and distribution obligations: Investment products, including our DDO Health Check, to assess your TMDs and product governance arrangements against ASIC's current view of DDO good practice.
ASIC reminds AFS licensees to comply with financial services laws
ASIC has sent a timely reminder to all AFS licensees about the importance of complying with financial services laws.
ASIC recently suspended Huntley Management's (HML's) AFS licence for failing to lodge financial statements and compliance plan audit reports for the 2021 and 2022 financial years for one of its 12 registered managed investment schemes (MISs). HML's licence authorised it to deal in interests in MISs to retail and wholesale clients. ASIC said HML failed to comply with financial services laws and was likely to do so again in the future. Our Funds Management team has assisted countless businesses comply with the AFS licensing regime and financial services laws. Reach out to our team for help understanding the regulatory landscape and what you need to do next.
ASIC greenwashing actions
ASIC recently released Report 763, which details ASIC's recent greenwashing interventions and highlights the increasing number of claims regarding environmental, social, and governance credentials made by listed companies, managed funds, and superannuation funds. From 1 July 2022 to 31 March 2023, ASIC's intervention led to 23 instances of corrective disclosure, 11 infringement notices, and one civil penalty proceeding.
ASIC updates internal dispute resolution data reporting framework
On 5 May 2023, ASIC published an update on the implementation timeframe of the internal dispute resolution (IDR) data reporting framework.
The implementation has been staggered based on the size of the financial firm However, by 29 February 2024, all AFS licensees who provide financial services to retail clients and all Australian credit licensees will need to comply with ASIC's IDR data reporting requirements. The IDR data reporting handbook highlights the requirements for firms to report their IDR data.
ASIC confirmed it will not publish IDR data until all relevant firms have commenced reporting after 29 February 2024. For the first time, this will lead to all financial firms reporting their customer complaint data to ASIC.
Reach out to us for details of your IDR data reporting requirements.
ASIC zeros in on credit and debt management
Credit providers and debt management firms have been put on notice that ASIC is taking targeted action against predatory lending, high-cost credit, and misconduct impacting consumers experiencing financial difficultly. The warning comes after ASIC's enforcement and regulatory guide highlighted over $30 million in civil penalties secured by ASIC in the first quarter of 2023 were against credit providers.
Following on from its announcement, ASIC has commenced civil penalty proceedings against car finance provider, Money3 Loans (Money3) alleging breaches of its responsible lending obligations. This is a prompt to all credit providers and debt management firms to review their practices to ensure they meet their responsible lending obligations. Reach out to our team for more information.
APRA and AFCA sign cooperation pact
On 28 April 2023, APRA released a signed Memorandum of Understanding (MoU) with the Australian Financial Complaints Authority (AFCA). The MoU outlines how the two bodies will work together to support a fair and efficient financial system through information sharing and other forms of cooperation.
AND THERE'S MORE ...
'Buy Now, Pay Later' products to be regulated under National Credit Laws
In an address to the Responsible Lending and Borrowing Summit on 22 May 2023, Financial Services Minister Stephen Jones announced the government intends to increase regulation of 'buy now, pay later' (BNPL) products. BNPL products are expected to be regulated as credit products under the National Consumer Credit Protection Act, with BNPL providers required to hold Australia Credit Licences and comply with responsible lending obligations. The Government plans to release draft legislation later this year for consultation with industry and consumer groups.
Global greenwashing research released
Clarity AI, a non-profit sustainability technology platform which runs a global environmental disclosure system whose customers include BlackRock and Invesco, recently released a study based on 18,000 funds across Europe. It found 96 percent of funds with the word 'sustainability' or other ESG labels would need to be restructured to comply with the requirements set by EU, UK, and US regulators. Further, the study found 85 percent of funds with these ESG-related labels do not comply with at least one of the three regulators listed above. This will continue to be an issue for asset managers until there is a global consensus regarding the language of sustainability and ESG.
ASIC unable to 'voluntarily' refrain from publishing notice of action in Gazette
ASIC may cancel an AFS licence held by a body corporate without a hearing if the body does not use the licence within six months of the licence being granted. Under section 915F(2) of the Corporations Act, ASIC must 'as soon as practicable' after notice of the cancellation is given to the licensee, 'publish a notice of the action in the Gazette'.
In a recent decision of the Administrative Appeals Tribunal (AAT) concerning the publication of a decision by ASIC to cancel a licensee's AFS licence, the Tribunal said ASIC did not have the power to voluntarily refrain from publication under section 915F(2). Although ASIC has a statutory duty to publish a notice, the Tribunal said its power to stay a particular decision under section 41(2) of the AAT Act extended to restraining publication, even where the cancellation decision itself it not being stayed.
Our specialist funds management lawyers are across AFS licensing issues and offer unique insights into the investment funds sector.