Financial Services and Credit Monthly Update June 2024
CONSUMER CREDIT
ASIC hardship report
The Australian Securities and Investments Commission (ASIC) has released nationwide research showing that 47% of Australians with debt have experienced difficulties in making repayments in the last 12 months. The research highlighted that 30% of Australians would not seek financial hardship support from banks and around 40% would rather sell their assets or get a second job before applying for assistance.
The top three practical barriers for customers to seek help were identified as the lack of awareness of available assistance programs, not knowing where to ask for help, and not knowing which sources to trust. ASIC has reminded customers on its Moneysmart website that they are entitled under law to request assistance if they experience hardship.
Buy Now Pay Later
On 5 June 2024 the Federal Government introduced a Bill for the regulation of Buy Now Pay Later (BNPL), the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (Cth). The Bill will expand the scope of the National Consumer Credit Protection Act 2009 (Cth) (the NCCPA) to cover BNPL products.
The proposed amendments will require BNPL providers to hold an Australian credit licence and require BNPL providers to comply with certain provisions of the NCCPA, establishing a new ‘low-cost credit’ category under the NCCPA. BNPL providers will have to assess the serviceability of their products. The Bill has been referred for consideration to the Senate Economics Legislation Committee. Its report is due on 2 August 2024.
COMPETITION
New measures to help consumers get better deals on banking products
The Treasurer has announced that the Federal Government will introduce a series of measures which aim to help consumers get better rates on mortgage and savings accounts. The new measures are the Government’s response to two inquiries by the Australian Competition and Consumer Commission: the inquiry into retail deposit products completed in December 2023 and the inquiry into home loan pricing in 2020. The proposed measures include:
requiring banks to notify consumers of changes to interest rates on their accounts and improve disclosure requirements for basic deposit products;
requiring comparison websites to disclose their method of ranking financial products and their financial relationships with product providers;
ensuring that consumers have easy access to forms for mortgage exit; and
improving customer communication regarding bonus interest rate offers and when an introductory rate period ends.
The Government will also request the Treasury to study how behavioural economics and prompts could be applied to encourage consumers to switch to cheaper home loans and retail banking products.
CONSUMER PROTECTION
National Anti-Scam Centre joins advanced scam intel exchange
The National Anti-Scam Centre has announced that it has joined an advanced scam intel exchange loop between Australian banks, telecommunication companies, digital platforms and the Australian Financial Crimes Exchange. The intel loop enables participants to share information about the latest tactics and tools adopted by scammers, which enhances the capacity to disrupt, intercept and prevent scammer contact with victims. The intel shared includes scam phone numbers, URLs, and bank accounts, which are the essential tools of scammers.
ASIC approves Banking Code update
ASIC has approved a new version of the Australian Banking Association’s Banking Code of Practice which will come into effect on 28 February 2025. Changes in the new version of the Code include:
expansion of the “small business” definition from $3 million in aggregate borrowings to $5 million;
improved inclusivity and accessibility for customers, including via interpreter services;
new provisions regarding deceased estates;
expansion of the “financial difficulty” definition; and
enhanced protections for loan guarantors.
CORPORATE
ANZ/Suncorp merger approved
On 28 June 2024, the Treasurer announced that the proposal of ANZ Group Holdings Ltd to acquire full ownership of Suncorp Bank could proceed, subject to enforceable conditions, including commitments relating to retaining branches and employees for a period of time, among other conditions.
ESG
Sustainable Finance Roadmap
The Federal Government has released its Sustainable Finance Roadmap outlining how the Government, regulators and industry will collaborate to implement sustainable finance initiatives and reforms. The roadmap presents the factors required to:
implement the Government’s mandatory corporate climate disclosure regime;
complete Australia’s Sustainable Finance Taxonomy;
develop product labelling requirements for investments marketed as sustainable; and
develop a series of best practice guidelines to assist businesses with the disclosure of their net zero transition plan.
The roadmap also sets out priorities to enhance the development of Australia’s sustainable finance industry, including measures against greenwashing, better understanding climate risks and opportunities, and improving access to climate and emissions data.
The aims of the roadmap are to help investors, companies and the community utilise the global net zero transformation, to maximise the economic opportunities associated with Australia’s sustainability goals, and to mobilise private capital needed to transform Australia into a renewable energy powerhouse.
FINANCIAL SERVICES
Consultation on regulations targeting delivering better financial outcomes
The Federal Government is seeking submissions on the draft Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024 (Cth) to support the implementation of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Cth) and delivery of the Government’s response to the Quality of Advice Review. The consultation is open until 8 July 2024. The draft regulations:
will allow information requirements under s 99FA of the Superannuation Industry (Supervision) Act 1993 (Cth) to be met electronically;
remove requirements regarding Fee Disclosure Statements, update record keeping obligations for new consent requirements, and remove references to civil penalties;
align requirements for Financial Services Guide and Website Disclosure Information;
streamline the regulations for conflicted remuneration; and
ensure informed consent requirements are applicable for benefits provided in relation to general insurance products where personal advice is given.
FINANCIAL MARKETS
Issuance of inaugural $7 billion green bond
The Federal Government has issued $7 billion worth of its first green bond to finance environmental and job-creating projects in Australia including green hydrogen hubs, community batteries and clean transport, and programs to conserve biodiversity. The bond issue was over-subscribed with more than $22 billion in bids from 105 investors domestically and internationally.
Market intermediaries urged to strengthen supervision of business communications
ASIC has published Information Sheet 283 Supervising your representatives’ business communications (INFO 283) to provide guidance for market intermediaries such as investment banks on supervision of their representatives’ business communications, to prevent, identify and address misconduct and contravention of the financial services laws. The Information Sheet deals with common challenges faced by market intermediaries in their supervision of representatives’ business communications, such as:
the prevalence of new communications channels that are beyond the scope of their surveillance systems (e.g. encrypted communication applications);
lack of controls to identify where data used in surveillance systems is incomplete or erroneous; and
reliance on ‘out of the box’ settings of vendor-provided communication surveillance systems and a failure to routinely calibrate alert parameters.
PAYMENTS
RBA preparing for comprehensive review of retail payments regulation
The Reserve Bank of Australia (RBA) is preparing to launch a holistic review of retail payments regulation once reforms to the Payment Systems (Regulation) Act 1998 (Cth) are in place. In a recent speech, Ellis Connolly, Head of Payments Policy at the RBA, outlined key focus areas for the upcoming review.
The review will examine issues such as the transparency of payment services, merchant payment costs, surcharging practices, mobile wallet regulations, and the cost and transparency of cross-border payments. Particular attention will be given to the implementation of least-cost routing for card transactions, with the RBA considering whether formal regulatory requirements are necessary to ensure broad adoption.
The RBA is also set to revisit its stance on surcharging for BNPL services, considering recent proposed legislative changes that will bring BNPL providers under credit regulation. Stakeholders will be invited to provide input on these issues as part of the RBA's efforts to promote an efficient, competitive, and safe payments system.
PRIVACY AND DATA
APRA letter on cyber security and data backups
The Australian Prudential Regulation Authority (APRA) has issued a letter to all APRA-regulated entities stressing the importance of data backups in cyber resilience. APRA has identified data backups against a data loss as a key weakness amongst the entities. It has detailed common problems in backup arrangements which may hinder their usefulness in restoring systems and has provided guidance on how these gaps could be addressed. APRA expects regulated entities to review their backup practices against the identified common issues and to notify APRA of any gap revealed which could materially impact the entity’s risk profile or financial soundness.
PRUDENTIAL
APRA clarifies superannuation promoter definition
APRA has released a letter to all registrable superannuation entity licensees setting out its response to the consultation on the proposed updates to the ‘promoter’ definition under Reporting Standard SRS 101.0 Definitions for superannuation data collection.
APRA guidance on Your Future, Your Super Performance Test
APRA has updated the frequently asked questions on the administration of the Federal Government’s Your Future, Your Super Performance Test to provide guidance to registrable superannuation entity licensees on the measures included in the test.
APRA updates to superannuation prudential framework for audit
APRA has released minor and consequential updates to the prudential framework regarding financial reporting and audit requirements for the superannuation sector. The finalised updates apply to several standards and guidance and are effective from 30 June 2024.
Digital Prudential Handbook
On 19 June 2024, APRA released its new digital framework in the form of the Prudential Handbook. The Handbook brings together all APRA’s policy standards, guidance and supporting information into a single online location.
APRA finalises guidance on CPS 230
APRA has released its finalised Prudential Practice Guide CPG 230 Operational Risk Management (CPG 230) to assist APRA regulated entities in their implementation of Prudential Standard CPS 230 Operational Risk Management (CPS 230) which takes effect on 1 July 2025. The key changes to CPG 230 include:
the guidance is shorter and more tightly focused;
entities which are classified as non-Significant Financial Institutions will have an additional 12 months to comply with certain requirements in CPS 230 relating to business continuity and scenario analysis;
the incorporation of a day-one checklist for entities to assist in their implementation of CPS 230; and
a three-year forward plan of APRA’s intended approach to supervising CPS 230, to assist industry with implementation and planning.
Final capital adequacy standards released
On 26 June 2024, APRA released final prudential standards, prudential practice guides, and reporting standards on the new capital framework for authorised deposit-taking institutions. These reflect updates to deal with implementation issues raised by industry. APRA says that the amendments are minor and technical in nature.
AML/CTF
AUSTRAC guidance on money mules
The Australian Transaction Reports and Analysis Centre (AUSTRAC) has published a financial crime guide to assist government agencies and financial service providers to identify signs of criminal networks exploiting international students and temporary residents as money mules. The AUSTRAC guide details behavioural and financial indicators to help financial service providers identify and disrupt transactions involving money mules.
DISPUTES AND ENFORCEMENT
Block Earner relieved from penalty; ASIC appeals decision
The Federal Court has relieved Block Earner from liability to pay a penalty after finding that Block Earner engaged in unlicensed financial services when offering its crypto-related Earner product. Although the Court considered Block Earner’s contravention to be serious, the Court held that Block Earner acted honestly and not carelessly when it offered the Earner product, having obtained legal advice and holding a genuine belief that its offering was compliant. However, ASIC has now appealed the Federal Court’s decision to relieve Block Earner of a penalty.
Equity Trustees fined for data reporting failures
APRA has imposed a $782,500 fine on Equity Trustees Superannuation Limited (Equity Trustees) for failing to comply with its data reporting obligations. Equity Trustees breached its reporting obligations by failing to lodge multiple reporting forms by the required deadlines for two funds under its trusteeship, AMG Super and Super Simplifier.
DDO stop order issued against Australian Unity Funds Management
ASIC has issued an interim stop order restraining Australian Unity Funds Management Ltd (Australian Unity) from issuing or distributing interests in the Australian Unity Select Income Fund to retail clients.
The stop order followed ASIC’s concerns that Australian Unity failed to take reasonable steps to ensure that its distribution was consistent with its target market determination for the product. According to ASIC, Australian Unity’s failure related to its reliance on an inadequate questionnaire for retail clients who had not received financial advice. ASIC considered that there was a high risk that a retail client would not understand the questionnaire.
Civil action penalty action against Medibank
The Australian Information Commissioner has commenced civil penalty proceedings in the Federal Court against Medibank Private Limited (Medibank) regarding its data breach in October 2022. The Commissioner’s case is that Medibank seriously interfered with the privacy of nearly 10 million Australians by failing to protect their personal information, in contravention of the Privacy Act 1988 (Cth).
The Commissioner’s action follows an investigation after the cyber-attack on Medibank which resulted in millions of customers having their personal information stolen and published on the dark web.
Active Super engaged in greenwashing conduct
The Federal Court has found LGSS Pty Limited, as trustee of the superannuation fund Active Super (Active Super), liable for making various misleading representations concerning its environmental, social and governance (ESG) credentials. Active Super claimed to have eliminated Russian investments and other investments including gambling, coal mining and oil tar sands. However, it was found to have invested in securities which it had claimed to eliminate during the relevant period.
CSF regime stop order issued against Hirehood
ASIC has imposed an interim stop order restraining Hirehood Pty Ltd (Hirehood) from offering securities under its crowd-source funding (CSF) document published on an intermediary platform. This is ASIC’s first exercise of its power to make stop orders regarding a CSF offer.
The stop order followed ASIC’s concerns over Hirehood’s use of a nominee arrangement which did not permit investors to directly own ordinary shares in Hirehood, but instead allowed investors to acquire only an equitable interest in the shares. This is contrary to the requirement that only fully paid shares can be offered to investors under the CSF regime, as opposed to an equitable interest. ASIC also alleges that Hirehood’s offer documents did not comply with the statutory content requirements.
Fertoz pays fine for greenwashing in market announcements
Fertoz Limited (Fertoz) has paid $37,560 in compliance with two infringement notices from ASIC on the ground that Fertoz made false or misleading statements in relation to its Reforestation Project in the Philippines (Reforestation Project).
In November 2023, Fertoz made statements in a publication on the Australian Securities Exchange which claimed the Reforestation Project would obtain an offtake partner or receive funding by the end of 2023 and begin planting in the fourth quarter of 2023. However, these statements were alleged to be false or misleading, as Fertoz had failed to obtain an offtaker partner or secure any funding necessary for the Reforestation Project by the claimed timeline.
iSignthis breached disclosure law
The Federal Court has found iSignthis Ltd (now Southern Cross Payments Ltd) (iSignthis), a provider of remote identity verification, transactional banking and payment processing services, in breach of multiple disclosure requirements. iSignthis was found to have had engaged in misleading or deceptive conduct by making false statements regarding its one-off revenue earned in 2018 and failed to disclose significant revenue and costs and the fact that VISA had terminated its relationship with iSignthis.
The Court also found that iSignthis’ director, Nickolas Karantzis, was involved in iSignthis’ failure to comply with its disclosure obligations and was in breach of his director’s duties.
ASIC appeals BPS case
ASIC has filed an appeal against some of the findings in Australian Securities and Investments Commission v BPS Financial Pty Ltd [2024] FCA 457. As summarised in our recent article, the judge in that case made a finding that an authorised representative of an Australian financial services licence (AFSL) holder could be authorised to issue a financial product on behalf of an AFSL holder.
ASIC’s intention is to seek clarification regarding circumstances in which the provider of a financial product who is an authorised representative of an AFSL holder is exempt from the requirement to hold an AFSL.
Mortgage aggregator liable for payroll tax on commission to brokers
In Loan Market Group Pty Ltd v Chief Commissioner of State Revenue; Loan Market Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 390 the Supreme Court of New South Wales found that aggregators Loan Market Group Pty Ltd and Loan Market Pty Ltd (together Loan Market) were liable for payroll tax on the commissions paid to mortgage brokers under the Payroll Tax Act 2007 (NSW) (Act) for the financial years ended 30 June 2012 to 30 June 2018. During this period, Loan Market entered into broker agreements with individual brokers which permitted the brokers to engage in credit activities by assisting clients with their loan applications.
Following an analysis of the terms of the broker agreements and the services provided by the brokers to Loan Market, the Court found that these agreements were ‘relevant contracts’ under the Act for payroll tax as they did not fall within any exemptions in the Act.
Ferratum $16m penalty
In a penalty decision, Australian Securities and Investments Commission v Ferratum Australia Pty Ltd (in liq) (No 2) [2024] FCA 701 handed down on 28 June 2024, Ferratum Australia Pty Ltd (in liquidation) (Ferratum) was ordered by the Federal Court to pay $16 million in penalties for contraventions of the NCCPA and the National Credit Code. Ferratum did not appear in the proceedings. It had been found liable for the breaches in 2023 in relation to its short-term lending business.