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30.06.2022

Publication

Financial Services Thinking – Issue 25

This edition of Financial Services Thinking features the latest news from ASIC. We also share a ‘hot tip’ about the obligation to lodge a copy of a supplementary constitution with ASIC when amending the constitution of a registered scheme.

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ASIC

Online threats and cyber safety

ASIC has reported that cyber resilience amongst firms operating in Australia has increased by 1.4 percent, which falls short of ASIC’s targeted 14.9 percent improvement. ASIC strongly encourages firms to assess their cyber risks and ensure their detection systems and response strategies are up to date.

ASIC has stated that it is not yet seeking to prescribe technical cyber security standards or to provide regulatory guidance. However, where ASIC considers a business has failed to meet cyber risk management obligations, it may consider enforcement action to drive better cyber security risk management practices amongst listed entities. Click here for more information on good cyber risk management.

We can help you understand your cyber safety requirements.

How to avoid greenwashing

ASIC has released Information Sheet 271 which provides an overview of ‘greenwashing’ and the current regulatory position for communicating to clients about sustainability related investment products. The Information Sheet provides nine questions or list of 'don'ts' for issuers to be mindful of in their disclosure and promotions, including the need to— 

  • use clear labels 
  • define the sustainability terminology they use 
  • clearly explain how sustainability considerations are factored into their investment strategy. 

ASIC considers ‘greenwashing’ as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable, or ethical. ASIC expects issuers to review their practices to ensure alignment with ASIC’s guidance.

You can read more about greenwashing in this article by partner Langton Clarke or contact our Funds Management team for more information.

Financial advisers beware – warnings and reprimands

ASIC is required to give written warnings and reprimands to financial advisers in specified circumstances for conduct engaged in, or circumstances arising, on or after 1 January 2022.

On 9 June 2022, ASIC released Information Sheet 270 Warnings and Reprimands explaining what they are; when ASIC will give a warning or reprimand; how ASIC will communicate a warning or reprimand; procedural fairness; and a financial adviser’s right of review.

ASIC must give a warning or reprimand in the following circumstances— 

  • contravention of financial services law that ASIC does not believe to be serious 
  • refusal or failure to implement an Australian Financial Complaints Authority determination 
  • an officer(s) of a corporation is unable to pay their debts, and 
  • non-compliance with a Tax Practitioners Board order. 

Get in touch with our team if you receive a written warning or reprimand from ASIC.

New financial reporting requirements for AFS licensees

On 3 June ASIC announced new financial reporting requirements for AFS licensees following changes to the accounting standards.

AFS licensee’s financial reports must contain disclosures consistent with the financial reports of other for-profit entities and be prepared in accordance with the accounting standards set by the Australian Accounting Standards Board (AASB).

From financial years commencing 1 July 2021, for-profit companies, registered schemes, and disclosing entities that prepare financial reports pursuant to Chapter 2M of the Corporations Act, which are not reporting entities, can no longer prepare special purpose financial reports that do not contain the full disclosures required under the accounting standards. Instead, entities that do not have public accountability are permitted to follow a simplified disclosure regime under the accounting standards. Public accountability entities must meet the disclosure requirements to the full standards. Full recognition and measurement requirements for assets, liabilities, income, and expenses must be applied by all entities.

An entity will have public accountability if— 

  • its debt or equity instruments are traded in the public market (being a domestic or foreign stock exchange or an over-the-counter market), or it is in the process of issuing such instruments) 
  • it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses (such as AFS licensees that hold client moneys).

In the lead up to 30 June 2022, ASIC also highlighted several key focus areas for reporting companies, including asset values, provisions, solvency and going concern assessments, events occurring after year end and before completing the financial report, disclosures in the financial report and operating and financial review.

Directors and management should assess how the current and future performance of a company, its business strategies, and the value of its assets and its provisions may be affected by changing circumstances, uncertainties, and risks.

Reach out to our Funds Management team for more details about your financial reporting requirements.

ASIC warns against ‘pump and dump’ scheme 

ASIC warns it is on the lookout for ‘pump and dump’ practices as well as misleading or deceptive conduct from those disseminating financial advice through social media platforms or online.  

This follows a recent case where ASIC successfully brought charges against Gabriel Govinda who ran a ‘pump and dump’ scheme. Gabriel would advise his followers to purchase shares in listed companies to drive up the price, before disposing of his holdings held by various accounts in the name of family and friends. Mr Govinda would submit false bids to increase demand and promote information about wash trades he had completed between accounts he controlled.

Funded class actions no longer required to be registered managed investment schemes  

The Full Federal Court recently held that litigation funding agreements are not managed investment schemes (MIS), overturning its longstanding decision in Brookfield Multiplex requiring litigation funding schemes to comply with the regulatory requirements of Chapter 5C of the Corporations Act.  

Litigation funders should be on the lookout for ASIC’s stance on the de‑registration of schemes in the coming weeks. We will keep you up to date with any changes.

ASIC remakes relief on PDSs and Financial Services Guides

ASIC has recently remade and combined legislative instruments relating to specific financial services disclosure requirements, including relief in relation
to—

  • shorter PDSs and PDS obligations for superannuation trustees, investor directed portfolio service (IDPS) operators, and responsible entities of IDPS-like schemes 
  • the giving of Financial Services Guides in time critical situations. 

These were due to automatically repeal or cease in the next two years if not remade.


Hot tip!

Best practice tip for trustees and fund managers

Responsible entities have an obligation to lodge a copy of a supplementary constitution with ASIC when amending the constitution of registered schemes. Any changes do not take effect until the constitution is lodged with ASIC. It is best practice to lodge the supplementary deed immediately following its execution, which should directly follow any meeting to approve the changes.

Reach out to our Funds Management team if you need to know more.


Authors

Emma Donaghue

Emma Donaghue

Partner

Elliott Stumm

Elliott Stumm

Partner

Contact McMahon Clarke

Brisbane
T +61 7 3239 2900
A Level 7, 100 Creek Street, Brisbane Qld 4000

Melbourne
T +61 3 9909 1400
A Level 2, 696 Bourke Street, Melbourne Vic 3000