In September 2020, the Australian Securities and Investments Commission (ASIC) has warned fund managers to ensure that the classification and marketing of their products remain “true to label” particularly as consumers continue to explore alternative investments during these times of market volatility. With the impact of COVID-19 continuing, ASIC has also extended a number of instruments that provide financial advice relief and exemptions for low capital raisings. The Select Committee on FinTech and RegTech has also provided their 32 “quick wins” or recommendations in their Interim Report, with the financial services industry set to be subject to a review conducted by the Australian Law Reform Commission (ALRC) in order to simplify the legislative regime.

ASIC warns fund managers to be ‘true to label’

Following the surveillance of 37 managed funds, ASIC warned fund managers on 22 September 2020 that they must do more to ensure that their products are ‘true to label’, whereby the product name must align with the underlying assets. The regulator recognised that during periods of market volatility consumers may seek alternative investment options, with consumers often guided by the financial product labels. As part of the targeted surveillance, ASIC held that 14 “cash” funds with approximately $7 billion in assets used deceptive and inappropriate product labels, with a mismatch between the redemption features and the liquidity of underlying assets in 3 funds with under $1 billion in assets.

ASIC has reminded responsible entities (REs) that their products must be “true to label” and not mislead investors, whereby redemption terms must be consistent with the underlying liquidity of the fund’s assets. As a response to the surveillance, the regulator has sought corrective action from 13 REs to change the names of their funds to reflect the product composition, amend the asset allocation to reflect the fund’s name, review the funds and even withdraw misleading promotional materials. Further information on the surveillance including details around RE’s obligations is available in ASIC’s Media Release.

ASIC extends COVID-19 relief for financial advice and certain ‘low doc’ capital raisings

On 23 September 2020, ASIC announced the extension of temporary relief currently afforded for financial advice related to the early release of superannuation and certain capital raisings due to the continuing impact of COVID-19. ASIC registered the ASIC Corporations (Amendment) Instrument 2020/862 (Instrument) which extends the financial advice relief to the early release of superannuation scheme to 15 April 2021, as well as the temporary relief for ‘low doc’ offers, including rights offers, placements and share purchase plans that are made to investors without a prospectus until 1 January 2021.

Due to the Government extending the superannuation early release scheme, ASIC has also extended its no action position with respect to superannuation trustees that was due to expire on 24 September 2020 until 31 December 2020. Further information on the temporary no-action position for intra-fund advice is available in our previous article, as well as the extension generally on ASIC’s website.

Select Committee on Financial Technology and Regulatory Technology publishes Interim Report

The Senate’s Select Committee on Financial Technology (FinTech) and Regulatory Technology (RegTech) published its Interim Report in September 2020, with its overall findings premised on five key categories including tax, regulation, capital and funding, skills and talent, as well as culture. Due to the impact of COVID-19, the Committee adjusted its timetable and extended the final reporting date until 16 April 2021, using the additional time to review technological reforms driven by COVID-19.

The Committee made 32 recommendations or a series of “quick wins”, with more substantial recommendations to be made in the Final Report in April 2021. Some of the key recommendations include permanently amending the Corporations Act 2001 (Cth) to enable companies to convene virtual Annual General Meetings, to allow the electronic execution and witnessing of documentation, as well as communicating with shareholders electronically. The Committee also recommended to broaden the scope of the Consumer Data Right (CDR) to include superannuation and general insurance, the establishment of a national body to oversee the implementation of the CDR, that the New Payments Platform (NPP) Australia regularly report on the implementation of the NPP roadmap to increase transparency and competition, and supported self-regulation with respect to the Buy Now Pay Later industry. The full list of recommendations made by the Committee are available here.

Australian Law Reform Commission (ALRC) review of the legislative framework for Corporations and Financial Services Regulation

Attorney-General Christian Porter MP issued Terms of Reference on 11 September 2020 to the ALRC in order to inquire into the potential simplification of laws that regulate the financial services industry in Australia. The Inquiry is a response to the recommendation made from the Royal Commission into the Banking, Superannuation and Financial Services Industry (Royal Commission) which highlighted the complexity of the current regulatory and legislative regime, with the inquiry tasked to “facilitate a more adaptive, efficient and navigable framework of legislation”.

The ALRC’s Terms of Reference focus on the appropriate use of definitions in corporations and financial services legislation, potential restructuring of Chapter 7 of the Corporations Act 2001 (Cth), as well as regulatory design and hierarchy of primary law provisions, regulations, class orders and standards. It is intended that the ALRC will deliver three interim reports by November 2021, September 2022 and August 2023, with the final report and recommendations due by 30 November 2023. Further information is available on the ALRC’s website, including the Terms of Reference.

Conflicted remuneration regulations for mortgage brokers passes

On 17 September 2020, Parliament passed the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers) (Mortgage Brokers) Regulations 2020 (Cth) (Regulations), governing the remuneration of mortgage brokers from 1 January 2021. The Regulations amend the National Consumer Credit Protection Regulations 2010 (Cth) to implement the Government’s response to Recommendation 1.3 from the Royal Commission to address conflicted remuneration for mortgage brokers.

The Regulations prescribe a number of circumstances where a benefit is and is not conflicted remuneration, circumstances in which conflicted remuneration must not be accepted or given, as well as other amendments with respect to clawback arrangements. The Regulations are available on the Federal Register of Legislation, as well as further information in the Replacement Explanatory Statement.

Business interruption insurance test cases

The UK High Court of Justice has handed down its decision in the expedited business interruption test case. The test case was brought by the Financial Conduct Authority (FCA) on behalf of policyholders in order to seek clarity on whether business interruption policies responded to losses sustained during the COVID-19 pandemic. The test case showed that insurers had varied wordings and, as a result, policy response varied. While individual claims will still have to be assessed in accordance with the relevant policy wording, a substantial part of the judgment was in favour of policyholders. The FCA has announced it is still in discussion with insurers in relation to the interpretation of the judgment and to find a way forward to finalise claims promptly. As there are some similarities between UK and Australian policy wordings, it will be interesting to see whether any local actions are brought, noting that the media has recently announced that The Star has brought proceedings against its business interruption insurer. The UK judgment is not binding on Australian courts, though depending on the circumstances decisions of the English courts have the potential to be persuasive.

A little closer to home, the Australian Financial Complaints Authority (AFCA) has also brought a business interruption test case in the NSW Supreme Court in a joint effort with the Insurance Council of Australia. The proceeding has been expedited and will be heard directly by the NSW Court of Appeal from 2 October 2020. The scope of the test case is to ascertain whether references in policy wordings to a ‘quarantinable disease’ in the now repealed Quarantine Act 1908 (Cth) should be read as a ‘listed human disease’ under the Biosecurity Act 2015 (Cth). This is an issue because a number of insurers did not update their wordings when the old Act was repealed.

Australian Prudential Regulation Authority (APRA) publishes data on the temporary early release of superannuation scheme

APRA has continued to publish weekly data at both an industry and fund level on the temporary COVID-19 superannuation Early Release Scheme. As at 28 September 2020, the Early Release Scheme has made $33.5 billion in payments, with the average payment of $7,674 being made in 3.3 business days. At a fund-level, the 10 funds with the highest number of applications received from the Australian Tax Office made 2.9 million payments totalling $21.9 billion. Further data on the Early Release Scheme at an industry and fund level are available on APRA’s website.

APRA and Australian Competition Consumer Commission (ACCC) executed a revised Memorandum of Understanding

On 15 September 2020, APRA and ACCC executed an updated Memorandum of Understanding (MoU) addressing the commitment of both regulators to collaboration and sharing of information. Although APRA’s primary objective centred on financial stability, APRA Chair Wayne Byres noted that both regulators are committed to providing a “safe, competitive and efficient financial system”. The revised MoU is accessible on APRA’s website.