In this edition of Financial Services Thinking we showcase the latest news from the corporate regulators and share a ‘hot tip’ about ASIC’s continued crackdown on compliance with the design and distribution obligations.
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Recent surveillance by ASIC resulted in 13 responsible entities and trustees voluntarily amending their marketing materials and offer documents. ASIC was concerned the funds failed to display sufficient warnings and risks associated with the investments offered, and often presented inconsistent and ambitious target returns without displaying clear prominent warnings to prospective investors.
ASIC has reiterated that where it finds poor conduct, particularly regarding imbalanced messages about risks, returns, fees, and benefits of the fund, it will intervene with regulatory interventions, including stop orders and court action.
It is important fund managers regularly review their advertising to ensure it remains current and meets best practice. It is not sufficient that constituent parts of the advertising are correct; fund managers must ensure the overall impression created is not misleading.
Reach out to partner Selina Nutley or a member of our Funds Management team — we can assist by undertaking a proactive review of your advertising, deliver training sessions, or respond to notices issued by ASIC.
On 9 September 2022, the ASIC Corporations (Amendment) Instrument 2022/719 was registered which implements temporary measures to assist unlisted entities affected by the impacts of COVID-19 by allowing them up to one additional month to complete financial reports and have those reports audited.
Reach out to our Funds Management team for information about your financial reporting requirements.
Following public consultation, ASIC has remade class order [CO 12/752] Financial requirements for retail over the counter (OTC) derivative issuers which was due to sunset on 1 October 2022. The new instrument sets out the financial requirements for issuers of OTC derivatives to retail clients. The financial requirements aim to ensure AFS licensees have adequate financial resources to operate their business in compliance with the Corporations Act, and to manage the operational risks inherent in the OTC derivatives market. ASIC has made the instrument for five years.
Our Funds Management team is up to date with the latest regulatory developments and challenges. Contact us if you have any queries.
On 13 September 2022, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment (Chapter 16 Amendments) Instrument 2022 was registered which is intended to facilitate international funds transfer instruction reports in the ISO 2022 format. Results in reports submitted to AUSTRAC may now include any details contained in the original funds transfer message.
On 26 September 2022, AUSTRAC released two money laundering and terrorism financing risk assessments for independent remittance dealers and remittance network providers. The comprehensive assessment describes each as a high and medium risk respectively. AUSTRAC has also released new resources for the bullion sector, introducing a money laundering and terrorism financing risk assessment.
The Albanese Government has released draft regulations to reinstate the longstanding exemptions from the AFS licence managed investment scheme for litigation funders that existed before the August 2020 changes. Consultation closes on 30 September 2022. Details are available here.
The Digital Assets (Market Regulation) Bill 2022, released for consultation until 31 October 2022, seeks to provide consumer protection whilst promoting investment in Australia through digital assets. The Bill introduces the requirements for licenses to issue for stablecoins, provide digital asset custody services, and operate digital asset exchanges, to ensure those services are treated similarly to other financial services in Australia. Notably for stablecoin issuers, the full amount of the face value of issued stablecoins must be held in reserve by the issuer in an Australian bank account.
On 14 September 2022, the Federal Government introduced exposure legislation proposing to make certain distributions funded by capital raising unfrankable. A distribution made outside, or additional to, a company’s regular dividend cycle, where the distribution is funded by capital raising activities from the issue of new equity interests, will not be able to be franked. Consultation closes on 5 October 2022.
ASIC has recently placed interim stop orders on the offer and distribution of two managed funds to retail investors due to deficiencies in the funds’ target market determinations (TMDs). For more details read our latest Alert: ASIC continues crackdown on DDO compliance.
ASIC’s actions are a strong warning to fund operators that the use of misleading performance and risk representations in advertising and offer documents will be actioned.
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