Risk and Compliance

The Australian Prudential Regulation Authority (APRA) has amended the prudential requirements for superannuation trustees relating to operational risk financial requirements (ORFR) as set out in Prudential Standard SPS 114 Operational Risk Financial Requirement (SPS 114) and related guidance.

The changes aim to strengthen operational resilience by ensuring trustees can better access the financial resources held to meet the ORFR when needed and to maintain an appropriate level of reserving.

The key changes are to:

• clarify the purpose of the ORFR;
• widen the allowable range of uses for the ORFR;
• introduce a clear and direct relationship with Prudential Standard CPS 230 Operational Risk Management (CPS 230); and
• amend the APRA notification requirements to facilitate further use of the ORFR.

Keynote address by ASIC Commissioner Kate O’Rourke at the 34th Annual Credit Law Conference.

Key Points

• Improving consumer outcomes in relation to financial products and services is a priority for ASIC. We will continue to focus on protecting consumers from poor conduct and harm from products in the credit and banking sectors.
• We also remain focused on advancing digital and data safety including addressing technology enabled misconduct like scams – and monitoring the use of artificial intelligence.
• We continue to monitor the regulatory settings (including the responsible lending obligations) and their outcomes. Our findings indicate that consumers continue to be able to access credit overall – and it is increasing.

APRA’s primary purpose is to ensure the safety and stability of the Australian financial system. A stable financial system is essential for a thriving and dynamic economy.

APRA’s mandate in supervising banks is to protect the interests of depositors and to promote financial stability. This objective is critical to the Australian community’s long-term financial well-being – a safe and stable financial system enables households and businesses to confidently borrow, save and invest for the future. We strive to perform our role in keeping with our Statement of Expectations which includes the facilitation of the flow of finance to the economy.

The Australian Prudential Regulation Authority (APRA) has written to all registrable superannuation entity (RSE) licensees outlining its approach for intensifying supervision of fund-level expenditure.

The letter provides RSE licensees with clarity about APRA’s planned activity in this area over the next 12 months, in accordance with APRA’s recently released Corporate Plan.

ASIC’s program of transformation continued in 2023–24, according to the agency’s latest annual report.

ASIC Chair Joe Longo said the report highlighted a range of key regulatory and enforcement outcomes focused on protecting consumers, reducing costs for businesses, and strengthening capabilities.

‘We have made significant progress with the program of transformation work we began three years ago,’ Mr Longo said.

The Federal Court today ruled Latitude Finance Australia and Harvey Norman Holdings Ltd engaged in misleading conduct and made false or misleading representations in relation to a widespread advertising campaign for a 60-month interest free and no deposit payment method.

ASIC was concerned the advertisements masked the fact consumers were required to take out a credit card, such as the Latitude GO Mastercard, to purchase goods. The advertisements were published between January 2020 and August 2021.

ASIC Deputy Chair Sarah Court said, ‘ASIC took this case because we believed many consumers may have been unaware of the financial arrangements they were entering into when they bought everyday products at Harvey Norman stores. In some cases, this may have meant they paid considerably more for purchases than they expected.’

The Federal Court today ordered Vanguard Investments Australia to pay a $12.9 million penalty for making misleading claims about environmental, social and governance (ESG) exclusionary screens.

These screens were applied to investments in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund.

ASIC Deputy Chair Sarah Court said, ‘This is an important decision and the penalty imposed is the highest yet for greenwashing conduct. Greenwashing is a serious threat to the integrity of the Australian financial system, and remains an enforcement priority for ASIC.

From 1 January 2025, many large Australian businesses and financial institutions will need to prepare annual sustainability reports containing mandatory climate-related financial disclosures, following the passage of a major bill through Parliament.

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) passed Parliament on 9 September 2024 and received Royal Assent on 17 September 2024.

ASIC Commissioner Kate O’Rourke urged those entities captured by the rollout to proactively engage with these mandatory climate reporting requirements.

‘Large businesses and financial institutions should ensure that they implement appropriate governance arrangements and sustainability record-keeping processes ahead of the mandatory climate reporting requirements taking effect from 1 January 2025,’ said Commissioner O’Rourke.

‘This is a significant reform that will have far-reaching implications for many of our key stakeholders. ASIC recognises there will be a period of transition as organisations develop the capabilities required to comply. We will take a proportional and pragmatic approach to supervision and enforcement as industry adjusts to these new requirements.’

Set to take full effect from 1 July 2026 (with 31 March 2026 a key date for some requirements), the reforms represent the most significant and substantial changes to Australia’s AML/CTF regime since its inception, imposing measures that dramatically affect both current reporting entities and services being captured for the first time.

ASIC is calling on product issuers to ensure distribution practices are up to scratch, pointing to flawed consumer questionnaires being the catalyst for some recent interim stop orders.

The call to action follows ASIC’s latest design and distribution obligations (DDO) surveillance, which looked at the obligation for product issuers to take reasonable steps to support appropriate distribution of their products. Poor product design and distribution puts consumers at risk of financial harm as they can end up with products that don’t meet their needs.

The Australian Securities and Investments Commission and the Australian Prudential Regulation Authority have published new information to help insurers and superannuation trustees prepare for the commencement of the Financial Accountability Regime.

The FAR already applies to the banking industry, and takes effect for the insurance and superannuation industries from 15 March 2025. It imposes a strengthened responsibility and accountability framework to improve the risk governance cultures of APRA-regulated entities, their directors and most senior executives.

The Federal Court found that Firstmac Limited breached the new design and distribution provisions by failing to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the distribution of one of its investment products being consistent with its target market determination for the product. This is the first finding by a court of a contravention of these provisions.

The Court found Firstmac implemented a ‘cross-selling strategy’ of marketing investments in its High Livez investment product to 780 consumers who held existing term deposits with Firstmac. In doing so, it breached its design and distribution obligations (DDO) when it sent product disclosure statements (PDS) for the Firstmac High Livez product to those existing term deposit holders, without first taking reasonable steps to ensure consistency with its TMD for the product. The conduct occurred between from October 2021 to September 2022.

ASIC Deputy Chair Sarah Court said ‘ASIC took this case because we were concerned that customers were exposed to the risk they might obtain a financial product that was not appropriate to their needs and objectives. This should act as a deterrent to anyone engaged in cross-selling financial products who fails to consider their design and distribution obligations before sending product disclosure statements,’ Ms Court said.

The Federal Court has declared a term used by PayPal Australia Pty Limited (PayPal) in its standard form contracts with small businesses to be unfair.

The Court found that the term was unfair because its effect was to allow PayPal to retain fees that it had erroneously charged if the small business failed to notify PayPal of the error within 60 days of the fee appearing on its account statement.
The declarations affect small businesses who opened a PayPal Business Account between 21 September 2021 to 7 November 2023. As of 30 June 2023, there were over 600,000 small businesses with PayPal Business Accounts. PayPal agreed that the term was unfair and consented to the declarations, having voluntarily removed the term from its contracts on 8 November 2023.

Deputy Chair Sarah Court said, ‘ASIC is dedicated to protecting consumers and small businesses from unfair contract terms and ensuring that all financial services providers use fair contract terms.’ 

‘Today’s decision serves as a reminder to all businesses that unfair contract terms contained within standard form contracts with small businesses will not be tolerated, and that ASIC will take decisive action where appropriate to protect the rights of consumers and small businesses.’   

The Australian Prudential Regulation Authority (APRA) has enhanced a core prudential standard governing strategic planning and member outcomes in superannuation.

The updated Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) and related guidance reinforce trustees’ duty to act in the best financial interests of members. The changes ensure members’ interests are front-and-centre in trustees’ strategic and business planning, financial resource management, implementation of the retirement income covenant and fund transfers.

Deputy Chair Margaret Cole said: “By strengthening this core strategic planning standard, APRA is setting a clear expectation for trustees to put members front of mind in every decision they make and the way they run their businesses every day.”

Putting customers at the centre of banking

Speech by ASIC Chair Joe Longo at the Australian Banking Association (ABA) Conference, 27 June 2024.

KEY POINTS

• Banks have a serious impact on the lives of Australians. When the customer is at the heart of their operations, that impact is for the good.
• Following consultation, ASIC has approved the new February 2025 Banking Code of Practice. As self-regulatory initiatives, industry codes have the potential to deliver real benefits to consumers, small businesses and subscribing entities.
• ASIC will continue to remain focused on the need for enhanced consumer protections, including in relation to proactively identifying customers eligible for basic bank accounts, the proactive identification of consumer vulnerability, and protections for loan guarantors.

ASIC has approved a new version of the Australian Banking Association’s (ABA) Banking Code of Practice, which includes enhancements to key protections. The new Code will commence on 28 February 2025.

The Australian Prudential Regulation Authority (APRA) has published a speech delivered by Chair John Lonsdale to the Australian Banking Association Conference in Melbourne.

In “A view from the other side”, Mr Lonsdale spoke about the importance of a strong, stable and resilient banking system to protect the community and taxpayers, as well as supporting a thriving economy.

ASIC is calling on market intermediaries to strengthen their supervisory arrangements for recording and monitoring representatives’ business communications to prevent, detect and promptly address misconduct and contraventions of financial services laws.

The Australian Prudential Regulation Authority (APRA) has released a letter to RSE licensees outlining key observations from the SPS 530 Valuation Governance Framework Self-Assessment Survey.

The survey of unlisted asset governance practices was conducted by APRA in late 2023 to assess the implementation of the enhanced requirements contained in Prudential Standard SPS 530 Investment Governance and related guidance.

The Australian Prudential Regulation Authority (APRA) has written to all APRA-regulated entities emphasising the critical role of data backups in cyber resilience. This communication is part of APRA’s ongoing commitment to supervising cyber resilience across industry, as outlined in its Interim Policy and Supervision Priorities update.

The letter details the common issues observed in backup practices that could hinder system restoration during an incident. APRA expects regulated entities to review their backup arrangements and address any identified gaps promptly.