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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. Litigation funding (Treasury): the Government’s legislation to cap litigation funder’s fees to 30% (see here), has narrowly passed the House. The draft legislation provides judges with additional powers to approve or vary the share of proceeds to ensure the distribution is fair and reasonable, with litigation funders to pay for independent experts used by a court. The fate of the legislation is still uncertain though — it needs to pass a divided Senate, where at least 2 Senators have said they will withhold support…
2. MLC action (ASIC): ASIC has applied to the Federal Court seeking civil penalties from MLC for insurance policy and service failures allegedly caused by poor systems and controls. ASIC has alleged that from 1999-November 2020, MLC failed to: 1. pay a life insurance benefit, known as a ‘rehabilitation bonus benefit’, to 297 eligible customers who were undergoing rehabilitation following an insured injury or disability; 2. update its definition of ‘Severe Rheumatoid Arthritis’ in a timely way, resulting in 12 customers suffering from Severe Rheumatoid Arthritis being denied insurance cover and MLC having to update the definition in over 190,000 insurance policies; 3. notify over 800 customers that their annual premiums had increased, their premiums were overdue, or that their insurance policies had been cancelled or lapsed; and 4. fully refund premiums to over 260,000 customers who had cancelled their loan insurance policies or paid out their loans. ASIC has alleged that as a consequence of these failures, MLC has breached its obligations as a financial services provider (s912A(1)(a) Corporations Act), its duty to act with utmost good faith in the handling of claims (s13(1) Insurance Contract Act), engaged in misleading and deceptive conduct (s1041H Corporations Act; s12DA, s12DB ASIC Act) and has accepted payment without intending or being able to supply as ordered (s12DI ASIC Act). On these bases, ASIC is seeking declarations, pecuniary penalties and other relief against MLC and estimated that the insurer has benefitted from the conduct to an amount tallying $17 million. MLC has since advised that it has remediated customers impacted by the alleged conduct. It is the second major action against insurers in as many months (see the IAL action in our past ARWW here), and coincides with some strong public and personal exhortations by ASIC (see below).
3. Pricing reviews (ASIC): ASIC has publicly (and privately, in some cases) directed general insurers to review their pricing systems and controls, including to ensure that customers get the discounts they are promised in full. The corporate regulator wants insurers to take urgent steps to ensure they can and do meet the pricing promises they make. It has said that this may require insurers to update legacy IT systems and make improvements across compliance, governance, and culture. It has said: “Where there are failures, or empty promises about price discounts, ASIC will use the full range of regulatory tools available to protect consumers — including enforcement action.” Some heavy handed action by ASIC here, and on top of a time of serious regulatory and compliance burdens on GIs.
4. Remediation guidance (ASIC): the corporate regulator has released an expanded regulatory guide to consult on the way licensees should conduct remediations to return money owed to consumers. Happily, it has a reasonable consultation date — 11 February 2022. This is going to be necessary, as the guide is very broad and (as most ASIC materials as there days) heavily principles-based. There are 9 principles in this guide that licensees need to follow, for example “Be timely without sacrificing quality consumer outcomes”. With AFCA waiting in the wings for a bigger role in licensee remediation (per Commissioner Hayne’s recommendation, God help us!), spending time on this RG consultation over the Christmas break will pay dividends in the long run and we intend to do so. It is also important as it is guiding ASIC’s thinking for licencing requirements, as it has stated that “Proactive remediation upon discovery of misconduct or other failures is necessary for licensees to achieve good outcomes for their consumers and comply with their licensing obligations to act efficiently, honestly and fairly.”
5. CDR (OAIC): the CDR gives consumers greater control over their consumer data. It enables a consumer to direct a data holder to provide their CDR data to an accredited data recipient, in a CDR compliant format. An audit of the big four banks has found they are generally handling consumer data under the Consumer Data Right in an open and transparent way with good privacy practices in place. The OAIC can assess or audit whether CDR entities are maintaining and handling CDR data in accordance with the privacy safeguards and CDR Rules (that relate to privacy or confidentiality).The OAIC’s first privacy assessment examined how the initial CDR data holders are complying with Privacy Safeguard 1, which requires providers to have a policy describing how they manage consumer data, and to implement internal practices, procedures and systems to ensure compliance. It is going to be very useful for those who are preparing for CDR, including the general insurers who are in the midst of their preparations and will have their own challenges e.g. common definitions and a focus on pricing decisions.

Thought for the future: I understand the need for enforcement action, and regulator guided reviews and ad hoc demands. The latter can take into account other matters though, including ASIC 2021’s Strategic Priorities: “Driving industry readiness and compliance with standards set by law reform initiatives (including the Financial Accountability Regime, reforms in superannuation and insurance, breach reporting, and the design and distribution obligations)”. There are only so many different fronts Risk, Regulatory and Legal teams can meaningfully work on at any one time…