Financial Services Thinking – Issue 29

Welcome to Financial Services Thinking where we showcase the latest news from the corporate regulators. We also share a ‘hot tip’ about timeframes for licensing applications and how we can make a difference.

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

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ASIC

ASIC issues stop orders 

ASIC has recently issued stop orders regarding the Westlawn Income Fund and a range of cryptocurrency funds operated by Holon Investments Australia. The order for each operator was received as a result of a non-compliant target market determination and is valid for 21 days. ASIC is concerned the funds have not appropriately considered the features and risks of the funds in determining their target markets, particularly in relation to risk profile, liquidity needs, and income distributions.  

Read our latest Alert about ASIC’s recent enforcement action.  We can help you with—

• engaging with your compliance plan auditor about how they intend to approach the design and distribution obligations (DDO) in your schemes’ next compliance plan audits
• conducting a desktop audit of your DDO policy and its implementation. 

If you need help or have any questions, please reach out to partner Sean McMahon, consultant Jeunesse Meldrum, or a member of our Funds Management team. 

ASIC Chair’s address at 2022 Annual Forum

ASIC Chair Joe Longo’s address at the 2022 Annual ASIC Forum reveals a few notable stances to be wary of going into 2023: 

1. Consistent with ASIC’s recent stance on greenwashing, ASIC is actively investigating the green credentials of listed companies and managed funds. Any disclosure regarding this attribute must be objective.
2. ASIC will utilise current laws and regulations regarding cryptocurrencies for the time being but is seeking to implement specific regulations along with a Central Bank Digital Currency in the future.
3. Following on from ASIC’s recent enforcement of the design and distribution obligations, Mr Longo has warned against issuers of risky products seeking to market their products to a wide range of customers where it is not appropriate and noted any harmful or predatory credit products or fringe lending practices are a particular focus for ASIC. Expect to see the stop order trend continue! 

These themes are reiterated in ASIC’s Enforcement Priorities for 2023.  If you have any concerns about your environmental, social, and governance disclosure or target market determinations reach out to our Funds Management team.

ASIC publishes updated and expanded remediation guidance 

On 27 September 2022, ASIC released updated regulatory guidance on how it expects AFS licensees and Australian credit licensees to conduct consumer remediation.   

Regulatory guide 277 Consumer remediation (RG 277) aims to provide a streamlined and clear consumer-centred remediation framework for licensees.  The guide sets out nine key principles for conducting an efficient, honest, and fair remediation in line with general licensing obligations.   

ASIC’s expectation is for licensees to proactively and promptly initiate remediation when it becomes aware of misconduct or other failures instead of waiting for a consumer to make a complaint.   The guide primarily concerns remediation of retail consumers. However, ASIC considers the guide may be appropriate for wholesale clients in some circumstances.  

Contact us to learn more about licensee’s obligations to conduct consumer remediation. 

Licensing and professional registration activities - 2022 update 

ASIC has released its annual licensing report outlining its licensing and professional registration activities along with key issues and new and proposed changes to ASIC’s licensing processes.   

REP 738 Licensing and professional registration activities states that in the 2021-2022 financial year, 416 AFS and credit licence applications were either withdrawn or rejected for lodgment and 538 licences were either cancelled or suspended.  

The report also identifies key factors impacting the time it takes ASIC to assess applications, including: 

• the fullness and quality of an application 
• the complexity of the authorisations sought and the applicant’s business model
• any adverse information about an applicant
• the number of applications received by ASIC.  

If you have any questions about making an AFS or credit licence application, reach out to partner Elliott Stumm or a member of our Funds Management team. 

ASIC remakes business introduction services relief for managed investment schemes

ASIC has extended the relief for business introduction services for registered managed investment schemes until 1 April 2025. The relief was due to expire on 1 October 2022. ASIC believes this relief is of particular benefit to schemes with fewer than 20 members seeking to raise up to $5 million. However, ASIC has not extended the same relief for companies. The relief is not intended to be remade when it expires on 1 April 2025. 

ASIC publishes breach reporting insights

ASIC released its first publication of information lodged under the new reportable situations regime, with over 8,000 reports made by financial services and credit licensees between 1 October 2021 and 30 June 2022.  

ASIC says these figures suggest licensees are taking too long to identify and investigate breaches, and less licensees are reporting under the regime than anticipated, with only 6 percent of licensees engaging in reporting. As a result, ASIC states it will continue working with licensees and other stakeholders to increase industry engagement.  

Reach out to our Funds Management team for help understanding your breach reporting requirements.

ASIC acts against greenwashing

ASIC has taken its first action for greenwashing against listed energy company Tlou Energy Limited, which was fined a total of $53,280 for failing to comply with four infringement notices regarding alleged false or misleading sustainability related statements. Tlou claimed certain products would be ‘carbon neutral’, ‘low emission’, and they were producing ‘clean energy’. ASIC’s notices contend Tlou made the claims despite no feasibility studies being conducted on the carbon neutrality of the projects. 

ASIC’s Deputy Chair Sarah Court said they are currently investigating several listed entities, super funds, and managed funds in relation to potential greenwashing claims.  

For background information about greenwashing read Langton Clarke’s article here.

Asia Region Funds Passport

ASIC is inviting the Australian funds management industry and interested stakeholders to contribute to a review of the Asia Region Funds Passport (ARFP) through a survey. The survey focuses on the level of industry interest and the preparedness of participants to use the ARFP. The ARFP framework is designed to support the development of an Asian region funds management industry through improving market access and regulatory uniformity.  The survey closes 15 November 2022.

ASIC’s 2021-2022 Annual Report

ASIC released its annual report focusing on regulatory and enforcement outcomes for 2021-2022. ASIC highlights poor product governance and marketing, cyber resilience policies, and greenwashing as key focus areas for the next financial year.   

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Treasury

Financial Services Legislation – Interim Report released

The Australian Law Reform Commission Report Financial Services Legislation: Interim Report B was tabled on 30 September 2022. The Report contains recommendations, proposals, and questions about the reform of corporations and financial services legislation. The recommendations relate to technical improvements that would simplify corporations and financial services legislation. Submissions close on 30 November 2022.  

Government review of managed investment schemes

As part of the 2022-2023 Federal Budget, the Government has committed $2.7 million of additional funding for the Treasury to assist reviews of the Reserve Bank of Australia and the regulatory framework of managed investment schemes (MISs).  The review of MISs was described by Financial Services Council chief executive Blake Briggs as a ‘health check’ by Treasury.  According to Briggs, the review of MISS will include ‘questions about wholesale and retail thresholds, the types of products being sold in retail markets, and whether the regulatory and oversight settings are right’. 

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Hot tip!

ASIC releases annual report on licensing

ASIC Report 738 Licensing and professional registration activities summarises its licensing and professional registration activities for the 2022 financial year.  The report notes ASIC received 1,859 applications for financial service licences, an increase of 35 percent, with 42 percent of these applications having additional regulatory conditions imposed on them. ASIC has also released the timeframes for applications as follows:

Application	Finalised within 150 days	Finalised within 240 days
AFS Licence - new	73%	91%
AGC licence - variation	67%	89%
Credit licence - new	82%	91%
Credit licence - variation	75%	87%
All AFS and credit licence applications	71%	90%

In our experience, we are often able to achieve shorter timeframes. If you have any questions about making an AFS or credit licence application or varying your AFS or credit licence, reach out to partner Elliott Stumm or a member of our Funds Management team.