The month of October 2020 has seen ASIC use its product intervention powers by imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients as well as releasing updated guidance on unfair contract terms laws for insurance. The Federal Government has announced a number of key reforms, including changes to superannuation through the ‘Your Future, Your Super’ package reforms as part of the 2020-21 Federal Budget, as well as a review of the payments system to ensure it remains innovative and supportive of competition. APRA has issued a letter to RSE licensees regarding their controlling stake obligations, with both ASIC and APRA publishing their 2019-20 Annual Reports.
ASIC uses its product intervention powers on CFDs
Following the initial consultation in August 2019, ASIC made a product intervention order on October 23, 2020 imposing numerous conditions on the issue and distribution of CFDs to retail clients. This follows concerns ASIC has had about the retail market for CFDs and a number of recent instances of misconduct by certain CFD issuers. During March and April 2020, it is reported that retail clients from a sample of 13 CFD issuers made a net loss of $774 million.
From March 29, 2021, ASIC’s product intervention order imposes the following:
- Restrictions on CFD leverage offered to retails clients across a range of different reference assets at different levels.
- Protections against negative account balances by limiting retail client CFD losses to the funds in their CFD trading account.
- Standardisation of close-out arrangements for CFD issuers that act as a circuit breaker to close-out one or more CFD positions before all or most of the investment is lost.
- Prohibition of certain inducements to retail clients, including trading credits, rebates or ‘free’ gifts.
The product intervention order will remain in force for 18 months, with the regulator given the power to extend the order or make it permanent. Further information about the order as well as ASIC’s key considerations is available in ASIC’s Media Release.
ASIC and RBA announce their expectations for CHESS replacement
ASIC and the Reserve Bank of Australia (RBA) have set out their expectations surrounding the ASX’s replacement of its Clearing House Electronic Sub-register System (CHESS). On October 1, 2020 the RBA released its ‘October 2020 Assessment of the ASX Clearing and Settlement Facilities’, with one of its key findings being that the ASX should implement the new system for the clearing and settlement of cash equities trades as soon as this can safely be achieved by both the ASX and users of the CHESS system. The significance of replacing CHESS in a timely and safe manner comes particularly after record trading volumes and processing delays in March 2020 due to the impact of COVID-19. The ASX is expected to provide independent assurances to both ASIC and the RBA to demonstrate its readiness in migrating to the new system, as well as its resilience, availability, performance, recoverability and security. More information surrounding ASIC and the RBA’s expectations is set out in ASIC’s media release, as well as the RBA’s media release.
APRA issues letter to RSE licensees on their controlling stake obligations and application kit
On October 15, 2020, APRA released a letter to RSE licensees reminding them of their obligations with respect to controlling stake requirements. APRA has advised licensees to review their current ownership structures, with the regulator observing that since the new requirements came into effect on July 5, 2019, RSE licensees and the person acquiring the controlling stakes may not have always considered the controlling stake requirements and approval process. Failure to obtain APRA’s approval prior to owning a controlling stake in an RSE licensee is a strict liability offence under section 29JCB of the Superannuation Industry (Supervision) Act 1993 (Cth).
An application for approval to hold a controlling stake in an RSE licensee must be considered when the ownership of shares in an RSE licensee changes. An application is required for a new RSE licensee and may also be required where there is a change in shareholdings for directors of an RSE licensee, where there is a restructure of a corporate group, acquisition of shares in the RSE licensee or its holding company, or where a successor fund transfer results in the transfer or issue of shares to a director or employer/employee organisation. An updated application form and instruction guide to owning or controlling an RSE licensee is now available on APRA’s website, including the letter to RSE licensees.
Government reveals ‘Your Future, Your Super’ reforms
The Federal Government, with the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator the Hon Jane Hume, have announced the ‘Your Future, Your Super’ package reforms to superannuation as part of the 2020-2021 Federal Budget. From July 1, 2021, the reforms seek to improve our superannuation system by:
- ‘Stapling’ superannuation accounts to employees so that their superannuation accounts follow the employees when they change jobs, and overrides the employer’s default superannuation fund. This will prevent unintended multiple superannuation accounts.
- Giving members access to a new online YourSuper comparison tool to assist them in choosing a better superannuation fund and encourage competition.
- Subjecting trustees to stricter obligations, including that they act only in the best financial interests of members, and that superannuation funds provide better information on how they manage and spend members’ money prior to Annual Members’ Meetings.
- Holding superannuation funds to account for underperformance by requiring superannuation products to meet an annual objective performance test.
More information about the ‘Your Future, Your Super’ reforms is available on Treasury’s website.
ASIC releases updated guidance on Unfair Contract Terms laws for insurance
On April 5, 2021, unfair contract terms laws will apply to insurance contracts. In preparation, ASIC has released updated Information Sheets. ASIC has recently engaged with insurers to discuss their progress in the lead up to the commencement of the new protections. ASIC’s supervisory work has focused on identifying potential terms of concern, including:
- Terms that allow an insurer to cash settle a claim based on the cost of repair to the insurer.
- Terms that are an unnecessary barrier to a consumer lodging a claim.
- Terms that reduce the cover offered where compliance with the preconditions is unfeasible.
- Terms that use an outdated, and therefore inaccurate or restrictive, medical definition.
Government announces review into the Australian payments system
Treasury announced on October 21, 2020 that the Australian Federal Government will review the Australian payments system to ensure it remains fit for purpose and supportive of innovation and competition, as part of the Digital Business Package from the 2020-21 Budget. The regulatory structure of the payments system has remained largely unchanged over the last two decades, with the review designed to ensure business costs are minimised, consumer experience is enhanced and that our regulatory architecture stimulates innovation and competition. The review commenced in October 2020, with the report due to the Treasurer by April 2021. More information is available is available in in Treasury’s terms of reference.
ASIC releases its Annual Report for 2019-2020
On October 23, 2020, ASIC tabled its 2019-2020 Annual Report to Australian Parliament, recording its performance and activities for the previous financial year. The regulator has noted its shifted priorities due to the continuing impact of the COVID-19 pandemic, with a number of new initiatives including heightened supervision for the fair and orderly operation of our markets, increased support for vulnerable customers and support through the timely completion of capital raisings and urgent transactions.
In response to the recommendations stemming from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, ASIC noted in 2019 to 2020, there was:
- An 11 per cent increase in the number of investigations.
- An increase in civil penalties imposed from $12.7 million to $25 million.
- A 48 per cent improvement in the time taken to file civil penalty proceedings.
- A 57 per cent increase in the number of custodial sentences imposed.
Further information about the regulator’s revised priorities, its performance and achievements by sector is available on ASIC’s website.
APRA releases its Annual Report for 2019-2020
APRA also released its Annual Report for the 2019 to 2020 financial year, detailing its 2019 regulatory and supervisory agenda and internal organisational changes as part of its 2019-2023 Corporate Plan. The Annual Report provides insights in the rearrangement of the regulator’s priorities and prudential framework due to the impact of COVID-19, with a focus on operational and financial resilience, contingency planning and the suspension of its policy and supervisory agenda, and the insurance of new banking and insurance licences. APRA’s Annual Report provides further details on its statement of performance, management and accountability, statutory reporting requirements and financial statements, with a copy of the Annual Report available here.
APRA publishes data on the temporary early release of superannuation
APRA has published its weekly data on the temporary COVID-19 superannuation Early Release Scheme (ERS), with data provided at both an industry and fund level. As at October 26, 2020, the ERS has made $34.4 billion in payments, with the average payment of $7,663 being made within 3.3 business days. The fund-level data shows that 100 out of the 175 funds completed more than 90% of payments within the 5 business day guideline specified by APRA, with the 10 funds with the highest number of applications received from the Australian Tax Office making 3 million payments totalling $22.7 billion. Additional commentary and data is available on APRA’s website.