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Financial Services Thinking

Issue 9, November 2020

Our final edition of Financial Services Thinking for 2020 gives a quick snapshot of the latest news for the financial services sector. We also highlight a warning about FASEA's new educational requirements and authorised representatives holding themselves out as financial advisers.

We hope Financial Services Thinking is a useful and informative resource, and we look forward to sharing this publication with you again in 2021.

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

With our best wishes for the holiday season.

ASIC

Affordable advice for consumers

Following the recent release of Consultation Paper 332: Promoting access to affordable advice for consumers (Consultation Paper), ASIC is seeking input from industry stakeholders to help the regulator understand—

  • the issues and impediments relating to the supply of good quality affordable personal advice
  • the practical steps ASIC and the industry can take to improve consumer access to such advice.

Submissions close 18 January 2021. The Consultation Paper is part of a broader piece of work by ASIC about improving access to personal advice for consumers. For more information click here.

Buy now pay later industry

ASIC has published a new report on Australia's 'buy now pay later' industry which reveals substantial growth since ASIC's initial review. Here are a few of ASIC's key findings:

  • The total amount of credit extended in the buy now pay later industry has almost doubled in 12 months.
  • The number of buy now pay later transactions increased from 16.8 million in the 2017-18 financial year to 32 million in the financial year 2018-19, which is an increase of 90 percent.
  • One in five consumers miss payments. In the 2018–19 financial year, missed payment fee revenue for all buy now pay later providers in the review totalled over $43 million, a growth of 38 percent from the previous financial year.

Licensing and professional registration update

ASIC has released its 2020 update on licensing and professional registration activities. The report outlines the key issues plus new and proposed changes to licensing processes. It also provides information and data on licensing and registration applications from the 2019–20 financial year. In summary:

  • Applications for professional registration and licensing remained steady with 1,500 applications received (compared to 1,504 the previous year). Of these, 1,346 were AFSL or ACL applications.
  • A total of 365 AFSL and ACL applications were refused or withdrawn.
  • In the 2019-20 financial year, ASIC finalised 76 percent of AFSL applications and variations within 150 days of receipt and approximately 90 percent within 240 days.

Over the years, we have advised on hundreds of AFSLs, including the requirements for holding an AFSL, preparing AFSL applications, regulatory requirements, and compliance. Please contact Elliott Stumm or a member of our Funds Management team for further information about our AFS and credit licensing services.

Annual Report 2019-2020

ASIC's annual report was recently tabled and provides a record of ASIC's activities and performance for the previous financial year. The report highlights the impact of ASIC's 'why not litigate' approach with—

  • an 11 percent increase in the number of investigations
  • a 48 percent improvement in the time taken to file civil penalty proceedings
  • an increase in the total civil penalties imposed from $12.7 million to $25 million
  • a 57 percent increase in the number of custodial sentences imposed.

Product intervention: contracts for difference

ASIC has made a product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients. From 29 March 2021, the intervention order will:

  • Restrict CFD leverage offered to retail clients to a maximum ratio which varies depending on the underlying reference asset.
  • Standardise CFD issuers' margin close-out arrangements.
  • Protect against negative account balances by limiting a retail client's CFD losses to the funds in their CFD trading account.
  • Prohibit giving or offering certain inducements to retail clients (eg offering trading credits).

If you would like to understand more about ASIC's product intervention power please click here for a recent article by Jeunesse Meldrum from our Funds Management team.

Treasury

Consumer credit reforms

Treasury recently sought public feedback on the Government's proposed amendments to the national consumer credit framework in relation to individuals and small businesses.

The changes are aimed at reducing the time it takes for individuals and small business to access credit while maintaining strong protections for vulnerable consumers. One aspect of the reforms amends the existing responsible lending obligations with a risk-based regime that allows lenders the flexibility to make decisions based on the characteristics of the borrower and the type of credit.

The new measures, if accepted, will come into force on 1 March 2021.

Small business insolvency reforms

The Government has announced changes to Australia's insolvency framework aimed at better serving Australian small businesses, their creditors, and their employees. The changes will introduce new processes suitable for small businesses, reducing complexity, time, and costs for small businesses. The changes will enable more Australian small businesses to quickly restructure. Where a restructure is not possible, businesses will be able to wind up faster, enabling greater returns for creditors and employees.

Treasury is currently undertaking a process of public consultation on these reforms which is open until 24 November 2020.

If the legislation is passed, the insolvency measures will come into effect from 1 January 2021.

If you need more information about these changes please contact a member of our Commercial Disputes team.

Cases and legislation

Loan agreements as financial products

In ASIC v Secure Investments Pty Ltd, the Federal Court said a loan agreement offered by an investment company constituted a financial product under the Corporations Act. The Court based this decision on the circumstances where the borrower used the contribution under the loan agreement to generate a return for the lender.

Our Funds Management lawyers can help with any queries you may have about what this decision means for your business.

Hot tip!

Be careful what you call yourself

Under the new FASEA Code of Ethics, authorised representatives cannot hold themselves out as financial advisers unless they meet the new educational requirements imposed by FASEA.

The education requirements apply to new advisers from 1 January 2021, while existing advisers have until 2022 for the FASEA exam and 2026 to complete a bachelor's degree.

If you need more information about these requirements and what the Code means for authorised representatives our Funds Management team can help.