The month March was a busy month which saw some significant developments in the financial services sector. Notably, ASIC is currently consulting on class orders about financial requirements in considering whether to remake certain class orders. The regulator is also consulting on ‘sunsetting’ class orders changing responsible entities and equal treatment. ASIC also granted conditional relief to facilitate reissue of certain life insurance policies. Turning to APRA, the regulator released several sets of insurance statistics from December 2022, as well as updates on the progression of the Superannuation Data Transformation project. Lastly, AUSTRAC provided reporting entities with updates from the Financial Action Task Force (FATF), the global group that sets international anti-money-laundering and counter terrorism financing (AML/CTF) standards, relating to foreign jurisdictions that present high money laundering and terrorism financing risk and have strategic deficiencies in their AML/CTF regimes.
The month of March also saw the reintroduction of the Financial Accountability Regime Bill and the introduction of a new cryptocurrency bill to expedite regulation. The Treasury also announced a review of the managed investment scheme regulatory framework.
1 Treasury announces review of managed investment scheme regulatory framework
On 8 March 2023, the Federal Government announced it would undertake a review into the regulatory framework for managed investment schemes (MIS). Seeing as the framework was introduced more than 20 years ago, the review will examine whether the framework is still ‘fit-for-purpose,’ and consider the following reform options;
- whether the thresholds that determine whether an investor is a retail or wholesale client remain appropriate;
- whether certain MIS investments should be able to be marketed and sold to retail investors;
- the various roles and obligations of responsible entities and whether the governance, compliance and risk management frameworks for MIS are appropriate; and
- interactions between Commonwealth and State laws when regulating real estate investments by MIS (including issues arising in relation to the failure of the Sterling Income Trust).
Treasury will release a public consultation paper by mid-year and consult with industry before reporting findings to Government by early 2024
2 Federal Government reintroduces the Financial Accountability Regime
On 8 March 2023, the new Federal Government introduced the Financial Accountability Regime (FAR) bill to parliament. Like its predecessors, the bill aims to increase the statutory accountability framework imposed by the Banking Executive Accountability Regime (BEAR) to all entities that are regulated by APRA. Under the proposed legislation, such entities would be required to comply with similar obligations as imposed under the BEAR in respect of:
- Accountability – entities would be required to conduct their business with honesty and integrity, and with due skill, care and diligence, and prevent matters from arising that would adversely affect its prudential standing or reputation;
- Key personnel – entities would need to nominate and register accountable persons to be collectively responsible for all areas of their business;
- Notifications to the regulator – entities would have to provide certain information about their business, accountable persons and breaches of the FAR; and
- Deferred remuneration – entities would be required to defer at least 40% of variable remuneration of accountable persons for four years.
The legislation if passed, has the potential to cause significant structural changes to the financial services sector in Australia.
The proposed legislation can be found here.
3 ASIC consults on class orders about financial requirements
On 3 March 2023, ASIC announced it was seeking feedback on its proposal to remake the following class orders without any substantive changes:
- Class Order [CO 13/760]Financial requirements for responsible entities and operators of investor directed portfolio services, which is due to expire on 1 October 2023;
- Class Order [CO 13/761] Financial requirements for custodial or depository service providers, which is due to expire on 1 October 2023; and
- ASIC Corporations (Financial Requirements for Corporate Directors of Retail Corporate Collective Investment Vehicles) Instrument 2022/449, which is due to expire on 1 October 2024.
ASIC’s view is that these class orders are operating effectively and continue to form a legitimate part of the legislative framework, and invited submissions to be made by 31 March 2023.
The full media release can be accessed here.
4 ASIC continues its focus on improved material business risk disclosure in annual reports
On 10 March 2023, ASIC announced that a further 6 listed entities had disclosed material business risks in their 31 December 2022 interim financial reports as a result of their ongoing financial reporting surveillance program. This takes the total to 16 listed entities that have now made additional risk disclosures through market announcements or subsequent interim financial reports.
ASIC will continue to review a selection of annual reports on a risk-based approach, and reminds directors of the importance of the disclosure of material risks that may affect the achievement of the entities strategy.
The full media release can be accessed here.
5 ASIC grants conditional relief to facilitate reissue of certain life insurance policies
On 17 March 2023, ASIC announced it would provide conditional relief for life insurers from the design and distribution obligations (DDO) when reissuing life insurance policies in certain circumstances.
The relief will provide an exemption for issuers of life insurance policies from compliance with DDO whereby policies originally issued before the commencement of the DDO are:
- reissued on the same terms and conditions; and
- are at the request of the policy holder.
The relief will also apply to life insurance policies issued after the commencement of the DDO, whereby the policies are being reissued to:
- correct an administrative error; or
- reinstate a policy that has lapsed due to non-payment of premiums.
The instrument will expire on 16 March 2028.
6 ASIC consults on ‘sunsetting’ class orders on changing responsible entities and equal treatment
On 21 March 2023, ASIC announced it was seeking feedback from responsible entities of managed investment schemes and corporate directors of CCIVs on proposals to remake the following class orders:
- Class Order [CO 13/519] Changing the responsible entity; and
- Class Order [CO 13/656] Equality of treatment impacting on the acquisition of interests.
CO 13/519 aims to clarify ambiguity surrounding the process and type of resolutions required for members to remove and replace the responsible entity of a listed scheme by modifying s601FM of the Corporations Act 2001 (Cth) to provide that the members of a listed scheme must pass an ordinary resolution to do so.
CO 13/656 provides an exemption for responsible entities and corporate directors from the duty to treat members equally in certain circumstances, including where they are offering interests or shares to a member with a registered address outside Australia or New Zealand.
7 New ASIC Report urges superannuation trustees to improve insurance outcomes for members
A new ASIC report released this month has taken a deep dive into the state of insurance in superannuation – revealing important findings.
The report looked at trustees’ responses to recent regulatory reforms, including the design and distribution obligations and the extension of the financial services obligation to act efficiently, honestly and fairly to all trustee activities. In reviewing 15 trustees, the report focussed on three broad areas: insurance design and data, claims handling practices, and member communications and engagement.
The key takeaway is that, while the industry has improved, work still needs to be done across the board to ensure members get value from insurance offered by superannuation. ASIC urged super trustees to:
- use real-time data to monitor member outcomes and respond to members’ needs;
- design and deliver better claims processes to improve members’ experience;
- improve member communication and processes so members understand their insurance cover; and
- create robust and fit-for-purpose systems, processes and controls to effectively manage how insurance is provided.
Given that 8 million Australians access insurance through superannuation, the report is a timely reminder of trustees’ frontline role in the industry.
8 ASIC consults on remaking ‘sunsetting’ class orders on IDPS and IDPS-like schemes
On 28 March 2023, ASIC announced it was seeking feedback from operators of investor directed portfolio services (IDPS) on proposals to remake the following class orders:
- Class Order [CO 13/762] Investor directed portfolio services provided through a registered managed investment scheme; and
- Class Order [CO 13/763] Investor directed portfolio services.
ASIC’s proposal is to modify provisions of the Corporations Act 2001 (Cth) to provide responsible entities relief from some of the managed investment scheme, fundraising, financial product disclosure and other investor rights provisions.
ASIC is asking for submissions to be made by 28 April 2023.
9 APRA releases private health insurance statistics for December 2022 quarter
On 1 March 2023, APRA published its Quarterly Private Health Insurance Statistics. The publication provides summaries of key financial and membership statistics for the private health insurance industry.
Among other things, the industry reported a decrease in net profit after tax for the year ended 31 December 2022, down 33.6% to $1.2 billion.
10 APRA releases general insurance statistics for December 2022 quarter
On 2 March 2023, APRA published its Quarterly General Insurance Performance Statistics and Quarterly General Insurance Institution-level Statistics. The published statistics provide an overview of the industry’s financial performance and position, and include detailed statistics at a class-of-business level.
Among other things, the publication noted that the industry reported a net profit after tax of $2.3 billion and a return on net assets of 7.2%.
11 APRA releases life insurance statistics for December 2022 quarter
On 2 March 2023, APRA published its Quarterly Life Insurance Performance Statistics. The publication provides industry aggregate summaries of financial performance and position.
The full publication can be accessed here
12 APRA provides updates on Superannuation Data Transformation
On 2 March 2023, APRA released the notes of the Superannuation Data Transformation Strategic Forum (SDTSF) held on 14 February 2023. The forum was an opportunity for industry stakeholders to contribute to APRA’s understanding of industry challenges relating to the transition to the new superannuation data collections. The notes acknowledge that APRA intends to update the timeframes for the consultations on reporting under Phase 2 of the Superannuation Data Transformation, and reduce the consultations to 2 per financial year.
APRA also responded to feedback on proposed amendments to reporting standards introduced under Phase 1 of the Superannuation Data Transformation, andas a result:
- APRA had adjusted the timeframes for investment option reporting for specific reporting labels from 35 days to 40 days; and
- APRA had included payees who are paid a sponsorship-related expense in the list of payees where payee details must be reported, regardless of the expense amount, and revised the materiality threshold for identifying payees for other marketing-related expenses from $10,000 to $5,000.
13 APRA releases private health insurance risk equalisation statistics for 2021/2022
On 15 March 2023, APRA released the private health insurance risk equalisation statistics for 2021/2022. The statistics show the net risk equalisation result for the financial year for each insurer.
14 APRA releases intermediated general insurance statistics for December 2022
On 29 March 2023, APRA released its bi-annual general insurance statistics for December 2022. The publication provides an overview of intermediated general insurance placed with APRA-authorised general insurers, Lloyd’s underwriters and unauthorised foreign insurers.
15 APRA releases amendments to the insurance capital framework
On 30 March 2023, APRA released a response to the consultation on accounting equity and other amendments to the insurance capital framework. Initially, the report noted the major concerns of those who provided feedback being:
- preference for adopting a less prescriptive approach where APRA incorporates the requirements as part of its supervisory approach rather than in the prudential standards;
- concerns with APRA seeking to influence accounting decisions;
- limitations of the Quantitative Impact Assessment (QIS) data provided to APRA; and
- lack of clarity around the specific situation the additional requirements are seeking to address.
Despite this feedback, APRA claimed that their amendments remained necessary to ensure regulatory capital levels are sufficient to protect prudential security, and thus finalised all amendments to the insurance capital framework without revision.
16 Financial Action Task Force updates on global money laundering and terrorism risk
AUSTRAC provided reporting entities with updates from the Financial Action Task Force (FATF), the global group that sets international anti-money-laundering and counter terrorism financing (AML/CTF) standards, relating to foreign jurisdictions that present high money laundering and terrorism financing risk and have strategic deficiencies in their AML/CTF regimes.
This information can assist reporting entities in meeting their obligations under the AML/CTF Act, including to conduct ML/TF risk assessments, maintain compliance programs and submit suspicious matter reports to AUSTRAC.
As of 24 February 2023, the FATF’s call to apply countermeasures on the Islamic Republic of Iran and the Democratic People’s Republic of Korea as high-risk jurisdictions remain in effect. Additionally, the FATF listed the following jurisdictions under increased monitoring that have strategic deficiencies in their AML/CTF regimes and are actively working with the FATF to address them:
- Burkina Faso
- Cayman Islands
- Democratic Republic of the Congo
- South Africa
- South Sudan
- Turkiye (or Turkey)
- United Arab Emirates, and
The FATF listed Cambodia and Morocco as jurisdictions no longer subject to increased monitoring. More information on the article can be found here.
17 New bill to expedite crypto regulation in Australia
This month, Senator Andrew Bragg introduced a bill to regulate cryptocurrency and other virtual assets in Australia ‘to protect consumers and promote investors’. The Digital Assets (Market Regulation) Bill 2022, proposes new regulatory standards for stablecoin issuers, central bank digital currencies, custody services, and digital asset exchanges.
Notably, the bill introduces:
- a licensing regime for digital assets;
- clearer monitoring and investigation powers for ASIC;
- APRA reporting requirements; and
- civil and criminal penalties to deter misconduct.
The bill is a timely response to the recent crypto blowouts, public mistrust and regulatory crackdowns around the world.