In June 2020, the Australian regulators continued to recalibrate their priorities and responses due to the ongoing impact of the COVID-19 pandemic. In particular, ASIC released reports putting investment funds ‘on notice’ to correct advertising and disclosure, as well as warning consumers and investors on the rise of scams during COVID-19. ASIC has also published its guidance on administering its product intervention powers, with APRA issuing a letter to superannuation trustees on COVID-19 data collection.
ASIC puts investment funds ‘on notice’ to correct advertising and disclosure
On 15 June 2020, ASIC put responsible entities (REs) of all managed investment schemes ‘on notice’ that the advertising of their investment funds must provide “clear, balanced and accurate information”. The findings follow the regulator’s risk-based surveillance of managed funds during the COVID-19 pandemic, including monitoring website disclosure, advertising material and product disclosure statements (PDSs). In particular, some of the issues that ASIC was concerned about included unbalanced comparisons, safety and stability representations, as well as withdrawal representations.
ASIC has directly raised concerns with 7 REs, who have reviewed advertising content or ceased advertising of funds, ceased issuing interests in funds until issues are addressed, withdrawn and replaced PDSs, clarified withdrawal terms, provided more prominent and balanced disclosure of disclaimers and investment risks, and/or have stopped comparing funds on websites to other lower risk products. ASIC’s Media Release serves as a timely reminder that all REs must ensure that their advertising and disclosure remains ‘true to label’ and is appropriately amended in real time to respond to economic uncertainty and volatility. Further information is available in ASIC’s Media Release.
APRA publishes letter to superannuation trustees on COVID-19 data collection
APRA has published on 24 June 2020 its letter to registrable superannuation entity (RSE) licensees with respect to a new COVID-19 Pandemic Data Collection (PDC) to enable the assessment of the impact of COVID-19 on the superannuation industry and outcomes delivered to members. The purpose of the PDC is to provide APRA with:
- enhanced data on the early release of superannuation, including affected demographics;
- quarterly data on foreign currency exposure and hedging, investment options and member switching;
- monthly data on complaints, member accounts with insurance that have been cancelled, intra-fund advice, as well as insurance claim activity;
- information to understand the impact of COVID-19 on the superannuation industry to report to the Government and other agencies.
Information is required to be provided on a monthly and quarterly basis with both components due by 31 July 2020, with details about APRA’s letter to RSE licensees and the PDC available on APRA’s website. For further information please also refer to our previous superannuation update.
ASIC releases guidance on the administration of its product intervention power
On 17 June 2020, APRA released its new guidance Regulatory Guide 272 Product intervention power (RG 272) on the management of its product intervention power. As part of ASIC’s regulatory toolkit, the product intervention power allows the regulator to intervene where they are satisfied that a product or class of products are likely to result in significant consumer detriment, and so respond in a timely and targeted manner.
ASIC RG 272 provides further guidance as to:
- the scope of ASIC’s power, including products that can be subject to such an intervention order, as well as the types of orders available under ASIC’s remit;
- when and how ASIC may exercise such power, including the meaning and scope of ‘significant’ detriment; and
- the process for making an intervention order, the consultation with affected parties as well as the consequences of breaching an order.
ASIC has previously consulted the proposed use of its product intervention powers with respect to retail over-the-counter (OTC) binary options and contracts for difference (CFDs), as well as add-on financial products sold by car yards. More information is available in ASIC’s Media Release as well as the new RG 272.
APRA publishes industry and fund-level data on early release of superannuation
APRA continues to publish its weekly industry and fund level data on the temporary early release of superannuation scheme due to COVID-19. As at 29 June 2020, the Early Release Initiative statistics report that $17.1 billion in superannuation has been paid out to members, with 2.4 million applications received and the average payment being $7,492. The data shows that it is taking on average 3.3 days to pay an application, with 95% of applications paid within 5 business days. The 10 funds with the highest number of applications that were received from the Australian Tax Office have made approximately 1.5 million payments, totalling approximately $11.21 billion. Further details on the Early Release Initiative statistics are available on APRA’s website.
APRA updates the MySuper Heatmap showing reduced fees for millions of members
On 30 June 2020, APRA published its updated MySuper Heatmap, illustrating that 42% of MySuper members have had their fees reduced since the MySuper Heatmap was first published in December 2019. This has primarily been driven by reductions in investment fees. It is estimated that the 6.1 million members affected have saved in aggregate approximately $110 million a year. The revised MySuper Heatmap does however highlight that fund administration fees have remained static or have risen slightly, with a number of underperforming funds still charging relatively high fees. Further information about the updated MySuper Heatmap is available on APRA’s website as well as a revised Issues Paper.
ASIC releases its Interim Corporate Plan for 2020-21
On 11 June 2020, ASIC published its Interim Corporate Plan for 2020-21, setting out 5 priorities in response to the COVID-19 pandemic:
- maintaining resilience and stability of our financial system;
- protecting consumers from harm during a time of heightened vulnerability;
- identifying, disrupting and taking enforcement action against harmful conduct;
- supporting Australian businesses to respond to the impact of COVID-19; and
- continuing to build organisational capacity during difficult times.
The regulator has also released a revised timetable of their ongoing work, providing further information on proposed timing of consultations and regulatory guidance for 2020-21. Further information about ASIC’s Interim Corporate Plan is available in its Media Release, as well as the revised timetable of ongoing work.
Treasury releases draft stamping fee exemption regulations
Treasury released on 4 June 2020 its exposure draft regulations and explanatory statement which seeks to extend the ban on conflicted remuneration to stamping fees paid in respect of listed investment companies (LICs) and trusts (LITs). Stamping fees are one-off upfront commissions that are paid to financial services licensees for their role in capital raisings, often associated with the initial public offering of shares. The exposure draft Corporations Amendment (Stamping Fee Exemption) Regulations 2020 (Cth) amends the Corporations Regulations 2001 (Cth) to remove the exemption from the prohibition on paying and receiving conflicted remuneration for LICs and LITs, with the exemption retained for real estate investment trust and infrastructure entities. The exposure draft regulations as well as explanatory statement are available on Treasury’s website.
APRA publishes new FAQ on margining and risk mitigation for OTC derivatives
On 1 June 2020, APRA published an additional frequently asked question (FAQ) to assist regulated entities in interpreting APRA Prudential Standard CPS 226 Margining and Risk Mitigation for Non-centrally Cleared Derivatives (CPS 226). The FAQ addresses the minimum transfer amount limit of A$750,000 for the Credit Support Annex where the collateral agreement base currency is not in the Australian dollar, but is denominated in a foreign currency. APRA has noted that it expects entities to incorporate a ‘prudent buffer’ for foreign exchange volatility when negotiating a Credit Support Annex. Further guidance on the FAQs to CPS 226 is available on APRA’s website.
ASIC releases Information Sheet 245: Board oversight and discretion in executive variable pay decisions during the COVID-19 pandemic
In 2019, ASIC had conducted a review of 21 ASX listed companies and their board oversight of variable remuneration schemes. The purpose of the review was to raise governance standards by making executives more accountable for their actions, to identify good and poor practices regarding variable remuneration, as well as to reduce the failure, reputational harm and loss as a result of poorly overseen variable remuneration. ASIC had planned to release a report on its findings, however due to the impacts of COVID-19 and its reprioritised focus, the regulator intends to release the report later in 2020.
ASIC has also released Information Sheet 245 Board oversight of executive variable pay decisions during the COVID-19 pandemic which addresses key factors to consider when exercising discretion with respect to executive variable pay during the COVID-19 pandemic, as well as the importance of a robust remuneration governance framework to ensure informed decision making. More information about ASIC’s targeted review, as well as Information Sheet 245, is available here.
ASIC amends capital raising and financial advice COVID-19 instruments
ASIC introduced three temporary measures in order to support the superannuation industry to provide affordable and timely advice to consumers during the COVID-19 pandemic. On 12 June 2020, ASIC registered an amending instrument in order to specify an end date for these instruments. The ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 and ASIC Corporations (Trading Suspensions Relief) Instrument 2020/289 will be repealed on 2 October 2020, with the ASIC Corporations (COVID-19 – Advice-related Relief) Instrument 2020/355 to be repealed on 15 October 2020.
The regulator has noted that it will continue to monitor the appropriateness of these temporary relief instruments and whether the relief should be extended, having regard to the continued impacts of COVID-19. More information is available in ASIC’s Media Release as well in the amending instrument.
Rise in investment scams during COVID-19
On 24 June 2020, ASIC reported that it has detected a rise in the number investment scams reported by Australian investors and consumers during the COVID-19 pandemic. For the period of March to May 2020, reports of misconduct received by the regulator are up 20% compared to the same period in 2019. In particular, ASIC has seen a surge in reports of scams related to fake crypto-assets, investments and term deposits, with scammers often presenting a range of investment options, making persistent requests to continue investing, displaying fake endorsements, requesting money to be paid to change bank accounts and luring people to invest in scam crypto-assets or forex trading. Further information can be found on ASIC’s website.