Financial Services Thinking – Issue 24

Read about the latest news from the corporate regulators in?Financial Services Thinking,?our monthly news for the financial services sector and beyond.

In this edition we share a ‘hot tip’ about the new Australian Financial Complaints Authority ‘user-pays’ funding which kicks off on 1 July 2022.

Please share?Financial Services Thinking?with your friends and colleagues, and we value?your feedback.

ASIC

Australian first: failure to manage cybersecurity risks breached AFSL obligations

For the first time in Australia, the Federal Court has found an AFS licensee (RI?Advice) breached its obligations to act efficiently and fairly and to have adequate risk management systems to manage its cybersecurity risks.

The finding comes after a significant number of cyber incidents across its authorised representative network between June 2014 and May 2020. The ‘bad actors’ gained unauthorised access to a file server which compromised sensitive personal information of several thousand clients and other people. The Court commented that licensees must have cybersecurity at the front of mind at all times and should work to materially reduce cybersecurity risk as much as possible.

This serves as an important reminder to licensees that they must ensure they have adequate cybersecurity measures in place.

If you have any questions or would like to understand how you can position your business to address these concerns, then please contact a member of our Funds Management team. You can also read our recent?Alert?by partner?Elliott Stumm.

Acting in the ‘best interests’ of consumers – a timely reminder

The Federal Court recently declared timeshare company Ultiqa Lifestyle Promotions breached financial services laws by failing to?ensure financial advice given to consumers was in their ‘best interests’. Financial advisers acting as authorised representatives of Ultiqa between 2017 and 2019 were found to have advised investors to invest in the Ultiqa Lifestyle Scheme (a timeshare scheme) despite the advice not being in the consumers’ best interests and not being appropriate to their circumstances.

ASIC Deputy Chair Karen Chester said, ‘This is an important decision for consumers and ASIC’s first financial advice action against a timeshare provider’.?

Reach out to our?Funds Management team?for more information.

ASIC issues warning for fake green bonds

ASIC has warned investors to be alert to several fake ‘green bonds’ offered by scammers. Green bonds are debt products seeking to raise funds for new and existing projects that offer climate change and environmental benefits.

Currently, green bonds are not available for direct investment by the general public or retail investors in Australia. Scammers may hold out to be well-known financial services firms and invite investors to buy into fake environmentally sustainable green bonds. Any Australian website, person, or organisation offering green bond investment opportunities is a scam.

Greenwashing

On an unrelated, but related note, it should be remembered that ASIC has been focusing on managed funds being promoted based on their focus on environmental, social, and corporate governance (ESG) considerations. The overrepresentation of the extent to which products are environmentally friendly, sustainable, or ethical is referred to as ‘greenwashing’. There is growing global unease about the risks of greenwashing of financial products – partly driven by a lack of clarity about labelling or a single generally accepted taxonomy in this area. You can read more about greenwashing in?this article?by partner Langton Clarke.

Contact our?Funds Management team?for more information.

AUSTRAC

AUSTRAC accepts enforceable undertaking from NAB

AUSTRAC has issued a timely reminder of its approach to enforcement of anti?money laundering and counter-terrorism financing (AML/CTF) compliance and reporting obligations.

On 2 May 2022, AUSTRAC accepted an enforceable undertaking from NAB to improve its AML/CTF programs, systems, and controls.

As part of the undertaking NAB is to improve the business group AML/CTF program, its customer identification procedures, and enhance its customer due diligence.

An independent auditor will report to AUSTRAC annually on NAB’s progress with a final report to be provided by 2025.

Despite no civil penalty provision being imposed, AUSTRAC’s Chief Executive Officer Nicole Rose said “All AUSTRAC regulated businesses have a responsibility to have measures in place to protect the community from serious and organised crime. When these obligations are not met, AUSTRAC will not hesitate to draw on our range of regulatory tools and enforcement powers to maintain public confidence in Australia's financial system”.

Reach out to our Funds Management team who can assist with your?AML/CTF compliance obligations and AFS licensing.

Financial institutions providing crypto exchange services no longer required to register with AUSTRAC

The new Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2022 (No.1), which took effect on 2 May 2022 removes the requirement for financial institutions enrolled with AUSTRAC that provide digital currency (cryptocurrency) exchange services from registering with AUSTRAC as a digital currency exchange service provider. A ‘financial institution’ in this context means an authorised deposit-taking institution, bank, building society, or credit union.

We assist countless prospective and existing businesses on complying with the AFS licensing regime and financial services laws, including the AML/CTF laws, throughout the life cycle of their business and investment funds.?Get in touch with our?Funds Management team?for more details.

AFCA

Review of AFCA

In 2021, the Minister for Superannuation, Financial Services and the Digital Economy undertook an independent review of the Australian Financial Complaints Authority (AFCA) to determine whether complaints were resolved by AFCA in a manner that was ‘fair, efficient, timely and independent’. The review considered submissions made by complainants, financial firms, consumer advocacy groups and other industry bodies or stakeholders.

Overall,?AFCA was found to be “performing well in a difficult operating environment and a changing regulatory landscape”?with room to improve as AFCA progresses from its ‘establishment phase’. You can read the Minister’s report?here.

If you are not sure about how to best meet AFCA's expectations or you receive an AFCA complaint and are unsure about what to do next, our?Funds Management?and?Litigation?lawyers are here to help.

AFCA publishes Fairness Jurisdiction Project outcomes report

Following the independent review outlined above AFCA has published a new?report?summarising the work it undertakes to ensure stakeholders understand AFCA’s fairness jurisdiction. This report concludes the Fairness Jurisdiction Project, which was a program of work to develop resources for AFCA staff, members, and complainants, including a new Fairness Jurisdiction Tool, new decision templates,?an apprehended bias policy, the AFCA Engagement Charter,?a revised AFCA approach library,?and new processes to?calculate and capture outcomes.

Litigation partner?Selina Nutley?spoke about these latest developments at our recent?Compliance Committee Forum webinar.?Contact Selina for more information.

Hot tip!

New AFCA funding model kicks off 1 July

The new AFCA ‘user-pays’ funding model kicks off from 1 July following extensive consultation with peak bodies and members.

Under the new model, which includes a single registration fee (set at $375.55 for the coming financial year), around 90 percent of members will see a positive or neutral impact on total fees, while the remaining 10 percent are expected to see an increase in costs, which AFCA believes ‘more accurately and fairly reflects their usage’. Also, all members qualify for five free complaints a year.

Reach out to partner?Selina Nutley?for more details.