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Keeping on top of the latest financial services regulatory & compliance trends?

Investing time in your professional development within a rapidly changing financial services industry is challenging. To meet that challenge, the Australian regulators weekly wrap is designed to keep you at forefront of your practice by quickly setting out the top 5 developments from the past week, analysis and practical considerations for the future.

1. Crypto (ASIC): ASIC has released information sheet (INFO 225) to assist the comprehension of obligations under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 if: 1) a firm is is involved with crypto-assets such as cryptocurrency, tokens or stablecoins, whether there are elements that are decentralised or not; or 2) a firm is considering raising funds through an initial coin offering. A quite helpful summary guide, if dense, and my top read for the week, it covers the following self-explanatory aspects: Part A: What should you consider when offering crypto-assets?; Part B: What is misleading or deceptive conduct in relation to a crypto-asset or an ICO?; Part C: When could a crypto-asset or an ICO be or involve a financial product?; Part D: When could a crypto-asset trading platform become a financial market?; Part E: What should you consider when offering retail investors exposure to crypto-assets via a regulated investment vehicle?; Part F: How do overseas categorisations of crypto-assets translate to the Australian context? The main thing to my mind when dealing with crypto is whether or not they need an Australian Market Licence e.g. if users can buy / sell crypto which is a financial product or AFSL e.g. for crypto derivatives, unless they thread the needle very finely in terms of their commercial activities — the state of regulation is unsatisfactory at this stage. With CBA jumping into the crypto market this week, and a concerted push in the Senate for Australia to be a leader in this space, my sense is that more regulation is likely to follow soon.
2. Advisers (ASIC): ASIC’s responsibilities in respect of the financial advice industry will be broadened under the Better Advice Act from 1 January 2022. The impact of the legislation will: expand the role of the Financial Services and Credit Panel by providing it with its own functions and powers, including powers to address less serious misconduct; wind up the Financial Adviser Standards and Ethics Authority and transfer the administration of the financial adviser exam to ASIC; introduce a single registration and disciplinary system for financial advisers who provide tax (financial) advice services; and, require all financial advisers to be registered from 1 January 2023. Hopefully not too much administration burden will be placed on advisers already struggling under the weight of the October 2021 regime changes…
3. Debanking (AUSTRAC): AUSTRAC has noted that over the past decade, the range of businesses impacted by a loss or limitation of access to banking services has expanded. Money transfer (remitters), digital currency exchanges, not-for-profit organisations (NPO) and financial technology (FinTech) businesses are disproportionally facing bank account closures given a number of factors, including risk, profitability and compliance with anti-money laundering and counter-terrorism financing requirements. At a time of heightened AML / CTF risk for AUSTRAC’s enforcement activities, it has nonetheless stated that “These businesses vulnerable to exploitation [e.g. remittance businesses] should not automatically have their accounts closed simply to avoid managing risk…Although the decision to close an account may remain a necessary risk control, AUSTRAC considers with appropriate systems and processes in place, banks should be able to manage high risk customers, including those operating remittance services, digital currency exchanges, not-for-profit organisations (NPO) and financial technology (FinTech) businesses.” Correct for AUSTRAC to say this, but what would be more helpful is practical relief to ease the burden placed on banks in banking these customers.
4. Climate reporting (UK): the UK will become first G20 country to make it mandatory for Britain’s largest businesses to disclose their climate-related risks and opportunities, in line with Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. This new legislation will require firms to disclose climate-related financial information, with rules set to come into force from April 2022.
5. Class actions (Treasury): The Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 (Cth) has been introduced to Parliament. The Bill will allow Courts approve or vary the method for distributing claim proceeds to non-members of the scheme, to ensure the distribution is fair and reasonable in light of the interests of scheme members, and establish a rebuttable presumption that the distribution of claim proceeds is not fair and reasonable if more than 30 per cent is to be paid to entities who are not scheme members, including funders and lawyers. It will also require plaintiffs to consent to become members of a class action litigation funding scheme before funders can impose their fees or commission on them — the days of massive open class actions are history. Finally, the Bill will enhance the role of independent experts, to support the courts in assessing proposed litigation funding fees and ensure that the interests of class members are properly represented.

Thought for the future: from what I am seeing, under the new AFSL / ACL breach reporting regime, the most common ‘deemed significant’ breach reported to ASIC is misleading & deceptive conduct under s. 12DA of the ASIC Act, followed by ‘material loss and damage’ to consumers. That is unsurprising, as s. 12DA is a strict liability provision where you do not need to have misled the consumer in order for it to be satisfied e.g. an incorrect fee statement quickly corrected arguably still triggers the section. There is room, in my view, for a practical risk based approach (though some lawyers will take a different view). My sense is that more regulatory departments will take a risk-based view as time passes, given the practical burden of the regime…