On 6 August 2024, the Bank of England (BoE) published its second assessment of the eight major UK banks’ preparations for resolution under the Resolvability Assessment Framework (RAF). The assessment is intended to give further reassurance that if a major UK bank were to fail today it could enter resolution safely, remaining open and continuing to provide vital banking services, with shareholders and investors (rather than public funds) first in line to bear the costs of failure. In this second RAF assessment, the BoE assessed major banks’ progress against issues outstanding from the first assessment, and for the first time tested how their preparations for resolution work in practice. In doing so it focussed on one of the three outcomes that major banks must achieve to be considered resolvable – having adequate financial resources in the context of resolution. The BoE’s assessment find that major UK banks have continued to make progress to improve their preparations for resolution, including embedding resolution preparations into their everyday business, and to address issues outstanding from the first assessment (which took place in 2022). As this was a more detailed assessment conducted by the BoE, and due to the work done by firms themselves to test their capabilities, this second assessment has identified new issues, but the BoE notes that none of these issues are likely to impede the BoE’s ability to execute a resolution. The BoE explains that further improvements in the areas identified in the assessment will help smooth the execution of a resolution. Looking ahead, the BoE flags that: Future RAF assessments will be used to undertake further detailed analysis of the major UK banks. The next assessment will focus on the continuity and restructuring outcome, including an assessment of the readiness of the major UK banks to quickly plan for and execute restructuring options to address the causes of failure and restore viability. The Prudential Regulation Authority will consult on the necessary rules changes to postpone the third RAF assessment (due to take place in 2025-26) by one year to 2026-27, in light of progress made to date on resolvability and to give the BoE and major UK banks time to further enhance and progress testing of their resolution capabilities. The BoE will engage with the major UK banks over the coming months on their workplans and anticipated areas of focus during this period, so that progress on resolvability continues to be maintained.

In our EMEA regulatory insights series colleagues from our EMEA offices provide an update on some of the key regulatory issues they are seeing in their local market. In this latest episode Maria Beatrice Gilesi from our Milan office discusses Italy’s implementation of MiCAR. Listen to the podcast here.

With the first set of reforms due to commence on 15 March 2025, insurers are no doubt gearing up for the implementation of the Financial Accountability Regime (FAR) and Prudential Standard CPS 230 Operational Risk Management (CPS 230).  Ahead of this, ASIC and APRA have recently released the FAR Regulator Rules for Insurers and APRA has finalised its Prudential Practice Guide CPG 230. The finalised materials provide greater clarity and certainty to insurers on the reforms, which are designed to lift accountability standards and operational resilience across APRA regulated industries. In this article, we share our insights on the recently finalised materials as applicable to the insurance industry (affecting general, life, and private health insurers), including updated comments from APRA on fourth party risks that have caused some consternation in the insurance industry. Upcoming dates for insurers               End of 2024Insurers positioned to set tolerance levels under CPS 23015 March 2025Implementation of the FAR1 July 2025CPS 230 Implementation Date1 July 2026Commencement of Business Continuity related components of CPS 230 for non significant financial institutions (non SFIs). No longer FAR away…the Regulator Rules have arrived APRA and ASIC have issued the Financial Accountability Regime Regulator Rules Amendment Instrument No. 1 of 2024 (Cth) which formalises the Regulator Rules for Insurers under the FAR. There have only been minor changes. The Regulator Rules prescribe the key functions and information for inclusion in the FAR register of accountable persons. They previously only included the key functions applicable to authorised deposit-taking institutions. The following key functions are now prescribed for insurers:[1] Column 1Insurance Key FunctionColumn 2 An accountable person has responsibility for the Insurance Key Function in Column 1 if they have actual or effective senior executive responsibility for management or control of the whole of, or a significant or substantial part or aspect of, the applicable key function as described in this Column 21.    Capital managementCapital management function, including the Internal Capital Adequacy Assessment Process, stress testing, capital buffers and capital instruments.  2.    Conduct risk management Conduct risk management, including the identification and monitoring of the risk of inappropriate, unethical or unlawful behaviour on the part of the accountable entity’s management or employees.  3.    Data managementData management, including data strategy, data architecture, data management framework and governance, data quality and issue management, and data risk management, including the state of data controls and data privacy.  4.    Financial and regulatory reportingFinancial and regulatory reporting function, including the preparation of statutory financial reporting, financial market disclosures (where relevant), and regulatory data collections, to relevant regulators including APRA and ASIC.  5.    Hardship processesHardship policies, procedures and practices for responding to and managing consumers experiencing financial difficulty (not limited to any specific remediation activity).   6.    Insurance risk managementProduct design, development and distribution, reserving and pricing functions including: framework, strategy, policies, procedures, assessment, pricing targets and tolerances, and any other related aspects. Note: This key function is different from the ‘Product design and distribution obligations’ key function in that this relates to managing insurance risk of the entity (i.e. issues/matters that may impact the financial soundness of the insurer and reporting and governance thereof).  7.    Operational risk managementOperational risk management function, including: maintaining the operational risk management framework and operational risk management strategy; identifying, assessing and managing operational risk and compliance; state of operational risk controls; evaluation of operational risk profile against board risk appetite; business continuity; and service provider risk management.  8.    Product design and distribution obligationsThe various activities involved in complying with the product design and distribution obligations.  Note: The product design and distribution obligations and the product origination key functions are related but may be distinguished as follows—The product design and distribution obligations involve ongoing monitoring of products and product governance arrangements, throughout the lifecycle of the product; the product origination obligations are concerned with specific obligations at the time the consumer acquires the product.9.    Product origination Product origination obligations that relate to financial products—including obligations relating to disclosure, contract formation and insurer representations.  10.   Recovery and exit planning and resolution planningRecovery and exit planning function, including governance arrangements, trigger frameworks, recovery and exit options, scenario analysis, assessment of recovery capacity, and communication strategy. Resolution planning function, including assisting APRA in identifying any critical functions, assessing the feasibility of resolution options, and removing barriers to the execution of a resolution plan.  11.   Reinsurance management Reinsurance functions including reinsurance strategy, management and administration.  12.   Scam managementThe entity’s policies, procedures and practices designed to prevent and mitigate consumer loss from scams and fraud, and to respond to incidents of scams and fraud and consumers who have been affected by such incidents.   13.   Technology managementTechnology management, including technology strategy, lifecycle management of technology used, state of technology controls, information security, disaster recovery, technology operations and infrastructure (including management and maintenance of business and technology applications).  14.   Training and monitoring of relevant representatives and staffTraining and monitoring of staff and representatives providing financial products or financial services or engaging in activities on behalf of a licensee. This includes training on mandatory continuous education on a product, service or activity.   15.   UnderwritingUnderwriting function including: establishing, maintaining and developing underwriting manuals, policies and procedures including compliance; maintaining underwriting standards consistent with established policy; resourcing of the underwriting function; and delegation and authorities; and budgeting and forecasting.16.   Whistleblower policy and process Implementation and monitoring of the entity’s whistleblower policy and processes.  The release of the key functions list will now assist insurers in completing their FAR implementation projects, including the identification of accountable persons, preparation of statements and mapping exercises as required. However, it is important to note that the list of key functions outlined in the Regulator Rules is not exhaustive. Even if all the applicable key functions are allocated, this does not mean that the insurer has covered all aspects of its operations. Furthermore, insurers must assess which of the key functions are applicable to them. For example, some of the key functions in the list above are not applicable to private health insurers, and this is acknowledged by the Regulators.[2]  ASIC has also recently re-issued Regulatory Guide 279 with additional commentary on the FAR. Clarification on Operational Resilience Prudential Standard CPS 230 While the FAR go-live date is 15 March 2025, insurers have slightly more time to prepare for CPS 230 as it does not commence until 1 July 2025.  Furthermore, APRA has given non SFIs additional time to comply with certain business continuity requirements (more on this below). Following consultation with the industry, APRA has now released the final Prudential Practice Guide CPG 230 Operational Risk Management setting out APRA’s expectations around compliance with CPS 230. The finalised guidance, together with APRA’s responses to the consultation, provide some welcome clarification on areas previously uncertain. The following items may be of particular interest to insurers: Insurance brokerage and reinsurance providers  APRA has responded to concerns that insurance brokerage and reinsurers would have to be classified as material service providers under paragraph 50 of CPS 230, regardless of their size or the nature and scope of the services being provided to insurer.  APRA has clarified that while CPS 230 is now final, it does not intend to capture arm’s length transactions, such as the purchase of reinsurance or the intermediation of an insurance policy by insurance broker. Such transactions do not automatically deem the provider of the service a material service provider.  APRA has clarified that CPS 230 is intended to capture those arrangements where an insurer relies on a service provider to undertake a critical operation (as defined in the Prudential Standard) or where the arrangement introduces a material operational risk to the insurer.  APRA says that CPS 230 is only intended to capture brokers if an entity relies on the broker in delivering a critical operation or the broker introduces material operational risk to the insurer. Fourth party risksThe capture of fourth party risks has caused much consternation among insurers due to the potential challenges in obtaining information from service providers and the costs associated with oversight of third and fourth parties. A fourth party is a party that a material service provider of the insurer relies on to deliver a critical operation. Under the draft prudential guidance, APRA indicated that it would expect insurers to manage the risks associated with fourth party and other downstream service providers for critical operations including through contractual provisions and assurances. These requirements have now been removed in the finalised guidance. APRA has clarified that it expects insurers to outline as part of its service provider management policy its approach to managing the risks associated with fourth parties and to take reasonable steps to identify the fourth parties where the fourth party is relied upon to deliver a service necessary to support a critical operation. This provides more leeway for insurers to design a fourth party risk management strategy that suits them.Interaction with Resolution Planning CPS 900APRA has clarified how Prudential Standard CPS 900 (Resolution Planning) (CPS 900) interacts with CPS 230.  Firstly, ‘critical functions’ and ‘critical operations’ are distinct concepts under the respective prudential standards although there is some overlap. ‘Critical functions’ under CPS 900 are also ‘critical operations’ under CPS 230. If CPS 900 applies to the insurer (i.e. SFIs or non SFIs determined by APRA), APRA may require entities to amend certain contracts with service providers to make them “resolution resilient” such that critical functions are maintained in resolution.  This may include services that support an entity’s critical functions, business lines, daily operations and/or resolution capabilities.  APRA has suggested entities could amend contracts to meet CPS 900 at the same time as they make their CPS 230 updates, rather than reopening the contract regime when APRA initiates resolution planning with them. Delayed start dateInsurers will also be relieved to know that APRA has agreed to delay the start date for certain business continuity related requirements under CPS 230, postponing the implementation date for these requirements from 1 July 2025 to 1 July 2026.  This extension is only available to non SFIs. The extension applies to paragraphs 40 to 46 of CPS 230. Getting ready for the starting line With the regulators issuing finalised materials for the FAR and CPS 230, insurers should now progress their implementation projects in earnest. The materials provide welcome clarification on key aspects that were previously uncertain. Furthermore, while the reforms will affect all APRA regulated entities, it is pleasing to see APRA address the insurance industry’s specific concerns in its response, for example, the clarification around the classification of insurance brokers and reinsurance. [1] Source: https://www.apra.gov.au/financial-accountability-regime-information-for-accountable-entities#appendix-a-key-functions-descriptions [2] See, for example, Regulatory Guide 279 at 3.4.2.

On 5 August 2024, the House of Lords Financial Services Regulation Committee announced that it had been reappointed by the House of Lords following the State Opening of Parliament, and that it would resume its inquiries into the secondary international competitiveness and growth objective given to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) as well as the FCA’s consultation paper CP24/2 on publicising enforcement investigations. Call for evidence on FCA enforcement consultation The Committee is now taking evidence again on FCA CP24/2: Our Enforcement Guide and publicising enforcement investigations – a new approach. It has reopened its call for evidence (which was originally opened on 8 May 2024 and subsequently closed following the prorogation of Parliament), and plans to invite the FCA to provide oral evidence to the Committee at a later date. Anyone with expertise in or experience of the matters relating to CP24/2 is invited to share their views with the Committee, including views in favour of the proposals or concerns about the proposed changes. The Committee flags that it cannot accept any submissions that have not been prepared specifically in response to the call for evidence or that have been published elsewhere. Submissions made before the call for evidence was suspended have been retained and do not need to be resubmitted. The deadline for submissions is 11 October 2024. Call for evidence on FCA and PRA secondary objective The Committee has also reopened its call for evidence on the FCA and PRA’s secondary international competitiveness and growth objective (which was given to them under the Financial Services and Markets Act 2023). This call for evidence was originally opened in May 2024 and closed following the prorogation of Parliament. The Committee is seeking views on the regulators’ new secondary objectives, how they are being implemented by the FCA and PRA and integrated with their other objectives, and what the implementation of the objectives might mean for the financial services sector in the UK. The deadline for submissions is 29 November 2024.

On July 25, 2024, in the case of Federation of Americans for Consumer Choice, Inc., et al. v. United States Department of Labor, et al., (“Federation of Americans”) the United States District Court for the Eastern District of Texas issued an order staying the effective date of the DOL’s final fiduciary rule (and related amendments to PTE 84-14) that was issued in March 2024. Read the full update here.

In PS24/9 (Payment optionality for investment research) the FCA sets out final rules for a new option to pay for investment research and sets out its feedback to its earlier consultation in CP24/7. To remind everyone, the new option will exist alongside those already available, i.e., payments for research from a firm’s own resources and payment for research from a research payment account for specific clients. Some are sceptical about the extent to which FCA consultations really contemplate change to the original proposals at the policy statement stage. That would be unfair in the context of this consultation as the FCA has made some substantive changes to its original proposals. Without running through all of these, the biggest changes are in relation to the guardrails which firms will be required to comply with in relation to the new option. In particular:- firms will be able to budget at the level of investment strategy or group of clients and to disclose at an aggregated rather than client level; softening the price benchmarking proposals to the price being reasonable; allowing ex-ante cost disclosure to be based on budget setting and cost allocation or on actual cost but not needing to be based on both; and flexibility on the way the arrangements with research providers are structured and documented. The above changes are welcome as recognition that the regime needs to be practical if it is going to be usable. However, the big question the paper does not really answer is how firms can reasonably allocate costs to the research piece of a bundled research and execution cost. Those of us who go back to the old, bundled world will be conscious that when these questions were asked it proved difficult to create a reasonable methodology for value. Debates have always ranged around the “real” value of the research component and such intangibles as the market profile of a “star” analyst and the extent to which the historic record of research accuracy should be built into the valuation methodology. These are not new problems but without more of an industry agreement on a valuation methodology and without some further cover from the FCA one wonders how confident firms will feel in going for a bundled but accurately split fee. This places considerable burden on the valuation methodology mechanics. Given the fact that the current regime has been in operation some years now one wonders how popular the new “hybrid” bundled fee but separately accounted for model is really going to be. In addition, to the extent that one of the motivators here is to encourage smaller cap research and stimulate the UK equity markets, query if this reform is really going to do this given the fair amount of cost associated with the guardrails. As the FCA is at pains to point out, this is not a fully bundled commission sharing arrangement (CSA) or an old-style soft dollar arrangement. What they may not have perhaps focussed on as much is the barrier to entry the cost associated with the proposed model. This may depend on how confident we should be on the cost benefit analysis in the consultation. Lurking beneath the above pragmatic concerns, there is also the deeper question of whether all of the original policy reasons why the FCA and the FSA before it felt so strongly about unbundling have really gone away. To remind us, there were a series of arguments based on conflicts of interest, over consumption of research by managers when the underlying client was paying and the whole issue of asymmetric information between manager and client which the FCA and FSA spent years researching and producing papers on. In the consultation and policy statement, these historic concerns are largely ignored rather than dealt with which is understandable given the concerns about under production of research for smaller caps. However, have these issues really gone away, particularly given that the regime will apply to the larger liquid stocks as well?     So, to summarise, the FCA has moved a reasonable distance to making the regime workable. Time will tell if the industry takes up this option or stick to what it has become used to and underlying it all there is a legitimate question to be asked on whether this is the end of this particular battle or whether as is often the way in regulation the pendulum will swing back the other way towards hostility to the perceived conflicts of interest. We shall see.        

On 1 August 2024, the European Banking Authority (EBA) and the European Central Bank (ECB) issued a joint report which assesses the latest payment data reported to these authorities under Article 96(6) of the revised Payment Services Directive (PSD2). The joint report: Covers semi-annual data reported for the three reference periods H1 2022, H2 2022 and H1 2023. Focuses on the payment instruments of credit transfers, direct debits, card payments (from an EU/EEA issuing perspective), cash withdrawals and e-money transactions. Data covers all EU/EEA countries that reported the full time series. Analyses total payment transactions and the subset of fraudulent transactions, both in value and volume terms. Provides more detailed analyses on specific topics such as the main fraud types and the application of strong customer authentication (SCA), as well as some geographical and country-level analyses. Key messages in the joint report include: Payment fraud reported by the industry across the EEA amounted to EUR 4.3 billion in the year 2022 and EUR 2.0 billion in the first half of 2023. Most payment fraud in value terms was related to credit transfers and card payments, across all three reference periods analysed. SCA was applied for the majority of electronic payments in value terms, especially for credit transfers (around 77%). In general, SCA-authenticated transactions showed lower fraud rates than non-SCA transactions, especially for card payments. Fraud rates for card payments turned out to be significantly (about ten times) higher when the counterpart is located outside the EEA, where the application of SCA may not be requested. The adoption of the regulatory technical standards for SCA and common and secure open standards of communication has had a positive effect on reducing fraudulent payments, especially for transactions conducted within the EEA. The EBA and the ECB will continue to closely monitor developments in payment fraud, using data collected under the PSD2 and the ECB Regulation on payments statistics.

On 2 August 2024, the FCA published Policy Statement 24/10 ‘Expansion of the Dormant Assets Scheme: second phase’ (PS24/10). Introduction The Dormant Assets Scheme (DAS) was initially set up to allow banks and building societies to pay dormant monies to an authorised reclaim fund, which would then put this money towards funding good causes. In February 2022, the Dormant Assets Act 2022 received Royal Assent. The Act amends the Dormant Bank and Building Society Accounts Act 2008 to expand the scope of dormant assets that can be contributed to the DAS. The new assets in scope of the expanded scheme fall under five asset clauses: insurance, pensions, securities, investment assets and client money. In August 2022, the FCA made changes to its Handbook, covering insurance, pensions and securities, in order to facilitate phase 1 expansion. On 22 May 2023, the FCA published Consultation Paper CP23/12: Expansion of the DAS – second phase (CP23/12). In CP23/12, the FCA consulted on the second phase of the DAS to make amendments to its rules and guidance in order to enable dormant investment assets and client money to be available to the scheme. The consultation closed on 10 July 2023. In PS24/10 the FCA provides feedback on the comments received to CP23/12 and sets out its final rules and guidance. Changes Following feedback to CP23/12 the FCA has made certain changes to its final policy on investment assets. The changes include that the FCA is: Not proceeding with the requirement under COLL 6.2.17BR (2) and COLL 4.2.5R (17) (da), which would have required units that were being redeemed prior to transferring the money to Reclaim Fund Limited (RFL) to be compulsorily cancelled. The FCA agrees with the feedback received that the added complexity for firms is not justified by the minimal risk and size of harm that the rule was intended to resolve. Under the final rules, redeemed units will not need to be compulsorily cancelled. Amending COLL 6.6.6R(5), so as to require the authorised fund manager (AFM) to maintain records if either the AFM or the depositary transfer money to the DAS, including when dormant assets which are orphan monies are transferred to the DAS. Not proceeding with the proposed rule COLL 4.3.7G (2)(e) to treat participation in the DAS as a significant change. For client money, the FCA is introducing the rules as consulted on. Among other things the FCA also notes that is has not made provision in the CASS rules to deal with reclaims. It does not regard the return of funds from RFL to a firm as meeting the criteria for such funds to form client money for the purposes of the CASS rules. Next steps PS24/10 sets out the relevant FCA instrument, Dormant Assets (Collective Investment Schemes and Client Money) Instrument 2024, which comes into force on 2 August 2024. Following the rule changes coming into force, RFL will be able to accept contributions from the investment assets and client money sectors. RFL will also need to put in place contracting agreements with participants, before any transfers can be made and announce a start date for these expanded sectors.

Global N/A EU 7 August 2024 –On 7 May 2024, the European Securities and Markets Authority issued a call for evidence on the review of the UCITS Eligible Assets Directive. The purpose of the call is to gather information to assess the possible risks and benefits of UCITS gaining exposure to various asset classes. The deadline for responding to the call for evidence is 7 August 2024. UK 5 August 2024 – On 29 July 2024, the Prudential Regulation Authority published a Policy Statement, PS14/24, on the leverage ratio treatment of omnibus account reserves and minor amendments to the leverage ratio framework. All the proposed changes in PS14/24 will take effect on 5 August 2024. 8 August 2024 – On 18 July 2024, the Payment Systems Regulator (PSR) launched a consultation, CP24/10, on draft guidance to support payment service providers in their assessment of whether an authorised push payment scam claim raised by a consumer is not reimbursable under the reimbursement requirement because it is a private civil dispute. CP24/10 is open for feedback until 8 August 2024, and the PSR aims to publish its final guidance in mid-September 2024.

The Central Bank of the UAE (CBUAE) has successfully launched the Project mBridge Minimum Viable Product platform for early adopters. The mBridge project is a multi-central bank digital currency (CBDC) common platform for wholesale cross-border payments and settlements. The technology can help connect economies and support international trade and cooperation outside the MENA region. The aim of the project is to facilitate efficient, low-cost, and instant cross-border payments settled in central bank money. The CBUAE anticipates the growing use of the mBridge platform for cross-border payments among the participating jurisdictions. The CBUAE and other banks across Hong Kong, Thailand and China have launched the Minimum Viable Product (MVP) phase of the project. CBUAE’s launch of the MVP is part of the Phase 1 implementation of their CBDC strategy. They are preparing for implementation of Phase 2 which will include domestic CBDC payments and enhancements of cross-border fund transfers. His Highness Sheikh Mansour Bin Zayed Al Nahyan initiated the first cross-border payment of ‘Digital Dirham’ (CBUAE’s CBDB) to China worth AED 50 million via mBridge in January 2024. Many UAE licensed financial institutions have been onboarded on the platform and those onboarded can initiate and process cross-border CBDC payments. The platform is a key initiative under the CBUAE’s FIT program which aims to accelerate the digital transformation for the UAE’s financial services sector.

On 30 July 2024, the Law Commission published a supplemental report and draft Bill that, if implemented, would confirm the existence of a third category of personal property into which certain digital and other assets could fall. This follows the publication in June 2023 of the Commission’s final report on digital assets, which set out recommendations for reform and development of the law on digital assets. The June 2023 report concluded that certain digital assets, including crypto-tokens and non-fungible tokens, are capable of attracting personal property rights. However, because they are fundamentally different both from physical assets, and from rights-based assets like debts and financial securities, they do not fit within traditional categories of personal property. The Commission therefore recommended that legislation should confirm the existence of a ‘third’ category of personal property. The draft Bill, which was consulted on in February 2024, makes clear that a thing is not prevented from being the object of personal property rights merely because it is neither a thing in action nor a thing in possession. The wording (but not the substance) of the draft Bill has been amended in response to points raised during the consultation. The Commission’s recommendation and the draft legislation, along with the other recommendations made in the Commission’s June 2023 report, are now being considered by the Government.

On 30 July 2024, the Complaints Commissioner, Rachel Kent, published her Annual Report for 2023/24: Reviewing how the financial services regulators consider complaints. In her first report since taking over the role, the Commissioner notes that she will be pursuing a focussed operations plan and strategy over the coming year, with the aim of ensuring consumers and businesses are fully able to benefit from the Complaints Scheme. The Commissioner flags the need to raise awareness of the Scheme among both industry and consumers, which she plans to address through an ‘outreach programme’. The report also includes information on the overall Complaints Scheme statistics for the year, Bank of England (BoE) / Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) specific statistics, policy considerations, and resources and performance. In its response, the FCA welcomes the report and responds to points raised by the Commissioner, as well as providing an update on its own key performance measures. The BoE and PRA have also issued a response welcoming the report and responding to certain points raised in it.

On 30 July 2024, the Prudential Regulation Authority (PRA) published a consultation paper, CP11/24, on International firms: Updates to Supervisory Statement (SS5/21) and branch reporting. SS5/21 sets out its approach to supervising international banks with activities in the UK. CP11/24 proposes targeted updates to reflect developments since SS5/21 was published and to provide detail or clarification on certain aspects of the PRA’s approach, although the FCA notes that its proposals in CP11/24 do not alter the overall framework in SS5/21. The PRA’s proposed updates to its approach to international banks include: The introduction of some additional indicative criteria that the PRA would consider when determining whether it would be appropriate for an international bank to operate in the UK as a branch rather than a subsidiary. Clarifications to the expectations of firms’ booking arrangements and extending their formal application to a subset of UK banks. Amendments to the PRA branch return designed to improve the collection of whole-firm liquidity data. Minor amendments to SS5/21 to clarify some of the PRA’s existing expectations and processes. The PRA also notes that: It is due, together with the Financial Conduct Authority (FCA), to publish a consultation on the review of the Senior Managers and Certification Regime during 2024, with relevance to the existing text in SS5/21 on the SMF7 Group Entity Senior Manager function. The PRA would aim to implement any proposed amendments to SS5/21 following that consultation at the same time as changes proposed in CP11/24. It is currently reviewing the deposit protection limit (as it is required to do by January 2025) and will consult later in 2024. In the event of future limit changes, these would affect what deposits in branches count towards the existing indicative thresholds in SS5/21 relating to Financial Services Compensation Scheme covered deposits. Next steps The deadline for responses to CP11/24 is 30 October 2024. The PRA proposes that the changes to SS5/21 resulting from CP11/24 would be implemented during Q2 2025, and the changes to the material relating to branch reporting would be implemented on 31 December 2025.

On 30 July 2024, the Prudential Regulation Authority (PRA) and Bank of England (BoE) announced that they have established a new cost benefit analysis panel (CBA Panel). The CBA Panel will provide advice on the preparation of cost benefit analysis (CBA) when the PRA and BoE propose new rules or amend existing rules for firms and financial market infrastructures. It may also provide recommendations on how the PRA and the BoE can improve their overall methodology and approach to CBA. The PRA is required to establish and maintain a CBA Panel under the Financial Services and Markets Act 2000 (section 138JA). The CBA Panel will begin reviewing the CBA of proposed new PRA policies from 1 August 2024, and will also discuss the BoE’s approach to CBA in early autumn 2024.

On 30 July 2024, the Bank of England (BoE) published a discussion paper (DP) on its approach to innovation in money and payments. The DP asks for responses on “the next step in a wide-ranging conversation on how to deliver an ambitious agenda for the UK payments landscape”. In the DP, the BoE explains how rapid innovations in payments can impact on its monetary and financial stability objectives, bringing both opportunities and risks. It sets out the BoE’s response to these innovations to date (including renewal of its Real Time Gross Settlement (RTGS) service), as well as how its response will evolve going forward, to enable innovation to take place in a safe way. The BoE outlines its proposed approach in relation to: Wholesale settlement in central bank money – the BoE flags the financial stability risks of financial markets moving away from using central bank money and explains that its approach is to preserve the role of central bank money as an anchor for confidence in the financial system. Exploring innovations in wholesale central bank money – to preserve the role of central bank money, the BoE proposes to explore technological innovations to the systems it operates, including enhanced functionality for the renewed RTGS system, and a programme of experiments which would also cover wholesale central bank digital currency (CBDC). The retail payments landscape – the BoE flags the importance of ensuring UK households and businesses can make payments with ease, speed and confidence. It warns that meeting these retail payments objectives will require clear and renewed leadership by the UK authorities in this space, and it plans to work closely with HM Treasury, the Financial Conduct Authority and the Payment Systems Regulator to achieve this. The deadline for responses to the DP is 31 October 2024.

On 30 July 2024, the Financial Conduct Authority (FCA) published an update on its motor finance work and a consultation paper (CP24/15) on extending its temporary changes to handling rules for motor finance complaints. Background In January 2024, the FCA announced that it was carrying out a review of the historical use of discretionary commission arrangements (DCAs) in the motor finance sector. At the same time, it published Policy Statement PS24/1 setting out temporary changes to the complaints handling rules for motor finance firms, including pausing (for 37 weeks) the requirement on firms to provide a final response to a complaint about motor finance agreements with DCAs within 8 weeks of receiving the complaint, and extending the time consumers have to refer DCA complaints to the Financial Ombudsman Service (FOS) from 6 to 15 months, if the firm sent its final response to the complaint within the period specified in the rules. The FCA also said at that time that it would communicate a decision on its next steps by 24 September 2024 at the latest, including whether to extend the pause or make other changes. Update on motor finance work In its update, the FCA explains that it now intends to set out its next steps regarding its review into the past use of DCAs in May 2025. It also notes that its next steps could involve consulting on a redress scheme, and for this reason the FCA intends (subject to CP24/15) to take the precautionary step of pausing complaint handling until later in 2024, as it says it may take until then to confirm how firms would implement the scheme. The FCA does also flag, however, that its next steps could involve asking firms to start dealing with complaints again as usual, in which case it would consult on ending the pause earlier. The FCA’s proposals In CP24/15, the FCA sets out its proposals to extend its temporary complaint handling rules for DCA complaints in the motor finance industry, on the basis that it has taken longer to collect and review the data than planned, and that there is also ongoing litigation. The proposals are to: Extend the complaint handling pause until 4 December 2024. Give complainants who are sent a final response to a DCA complaint until at least 29 July 2026 to decide whether to refer their complaint to the FOS. The FCA recognises that while it considers it necessary to continue to pause complaint handling, this will mean that many consumers who have complained to firms about DCAs have now been waiting a long time. It is therefore consulting on the change. The deadline for responding to CP24/15 is 28 August 2024. The FCA intends to consider comments received and to publish its feedback, along with final rules, in a policy statement by 24 September 2024.

On 31 July 2024, the European Banking Authority (EBA) published a letter and a provisional request for technical advice which it had received from the European Commission (Commission). The provisional request concerns technical advice on a possible delegated act specifying the method for the determination of the amount of the fees, and the modalities of the payment of such fees, to be paid by financial and non-financial counterparties requiring the validation of pro-forma models under the proposed Regulation amending the European Market Infrastructure Regulation (EMIR) as regards measures to mitigate excessive exposures to third-party central counterparties and improve the efficiency of EU clearing markets (EMIR 3). The request is provisional as EMIR 3 has not yet entered into force. The provisional request asks the EBA to deliver its technical advice by 30 June 2025.

On 31 July 2024, the European Securities and Markets Authority (ESMA) issued an opinion that is addressed primarily to Member State competent authorities (NCAs) which tackles regulatory and supervisory arbitrage risks stemming from specific business set ups whereby Multifunction Crypto-asset Intermediaries (MCIs) would only seek authorisation under the Markets in Crypto-assets Regulation (MiCAR) for brokerage services but intend to leave a large part of the group activities (and in particular the operation of a trading platform for crypto-assets) outside of MiCAR. The purpose of the opinion is to share relevant criteria to promote supervisory convergence and support the NCAs’ assessment of the business model and activities that the applicant MCIs intend to carry out, as well as the ongoing assessment of how such activities are carried out. The opinion calls for a case-by-case assessment, outlining the specific requirements that should be met regarding best execution, conflicts of interest, the obligation to act honestly, fairly and professionally in the best interests of clients and the obligation relating to the custody and administration of crypto-assets on behalf of clients.

On 31 July 2024, the European Banking Authority (EBA) issued a public consultation on draft Implementing Technical Standards (ITS) for uniform reporting templates in relation to the level of charges for credit transfers and share of rejected transactions under the Single Euro Payments Area (SEPA) Regulation. On 19 March 2024, the Instant Payments Regulation amending, inter alia, the SEPA Regulation was published in the Official Journal of the European Union. A new Article 15(5) of the SEPA Regulation provides that “The EBA shall develop draft implementing technical standards to specify uniform reporting templates, instructions and methodology on how to use those reporting templates for the purposes of reporting as referred to in paragraph 3.” In the consultation paper the EBA proposes to fulfil the mandate in Article 15(5) of developing the templates, instructions and methodologies for the collection of the information to be submitted from payment service providers (PSPs) to Member State competent authorities, with the ultimate aim of informing a report that the European Commission (Commission) must provide to the European Parliament and the Council per new Article 15(2) of the SEPA Regulation. In the draft ITS, the EBA is proposing that PSPs report the level of charges for regular credit transfers and instant credit transfers with breakdowns by type of transfer (domestic or cross-border), type of payment service users, type of payment initiation channels, and the party subject to the charge. The EBA is also proposing that PSPs report charges for payment accounts, as well as the share of instant transfers, both domestic and cross-border, that were rejected due to the application of EU-wide restrictive measures. Next steps An online public hearing on the technical standards for uniform reporting under the SEPA Regulation will take place on 9 October 2024 from 10:00 to 11:30 CET. The deadline for registration is 7 October 16:00 CET. The deadline for comments is 31 October 2024. After the consultation, the EBA will submit the final draft ITS to the Commission, which is expected to take place by the end of 2024.

Authors: Ray Giblett, James Morris, Liz Hastilow, Rajaee Rouhani, Jeremy Moller, Charles Nugent-Young, Merren Taylor, Timothy Chan, Joshua Kan, Liam Mackay, Mia Blundell and Marc Kopelowitz. The months of May and June saw several significant developments in the financial services regulatory landscape. Notably, ASIC focused its attention on ESG-related concerns, with Chair Joe Longo delivering a speech urging entities to avoid conduct that may amount to greenwashing. This was timely considering the impending commencement of the proposed mandatory climate-related disclosure regime, where ASIC expressed its intention to take a pragmatic approach to the supervision and enforcement of the regime. On the other hand, APRA focused its attention on the implementation of the new private health insurance capital framework, and also issued its finalised CPG 230, a prudential practice guide to assist banks, insurers and superannuation trustees improve their management of operational risk and enhance business continuity planning. In June, APRA issued its new digital ‘Prudential Handbook’ which brings its prudential standards, guidance and other supporting information into one place. It also finalised its consultation on amendments to the superannuation prudential framework for audit.  The month of June saw significant updates to ASIC’s regulatory focus on greenwashing. Namely, the Federal Court handed down judgment in favour of ASIC in its greenwashing action against superannuation fund Active Super, while Fertoz Limited paid two ASIC infringement notices for false and misleading statements about its reforestation project in the Philippines which amounted to greenwashing. Meanwhile, AUSTRAC accepted an Enforceable Undertaking from a sports-betting entity to uplift its compliance with the anti-money laundering and counter-terrorism financing (AML/CTF) obligations. It also agreed on a penalty for a casino for alleged breaches of the AML/CTF regime, which was accepted by the Federal Court of Australia in June. The second round of consultation for the reforms to the AML/CTF regime also ran from May until June. The reforms propose extending AML/CTF obligations to Tranche 2 entities and simplify and modernise the regime. AUSTRAC also met with the Financial Intelligence Consultative Group in May to discuss financial crime and safety in the ASEAN region. In June, AUSTRAC released a new financial crime guide related to combatting the use of foreign students as money mules. Other AUSTRAC announcements include a statement from the new CEO Brendan Thomas, who also attended the ACAMS Conference in June, an update from the RegTech Symposium, tips for cyber safety, and the importance of entities submitting suspicious matter reports. 1             Improving superannuation member services — Dealing with death benefit claims On 1 May 2024, ASIC stated that it was undertaking a multi-year review of industry practices and compliance with laws relating to member services. Between 2021 and 2023, there was a sharp increase in the number of death benefits complaints to the Australian Financial Complaints Authority (AFCA). Growth in complaints about service-related issues doubled over this period, but complaints about delays in death benefit claims handling saw a disproportionate increase, rising from 2.5% of service-related complaints to AFCA in 2021 to 8.5% of service-related complaints in 2023. The first phase of ASIC’s death benefit claims work was focussed on public website communications and resources about death benefit nominations and how to make a death benefit claim. Key findings from the first phase of ASIC’s review included: across the 22 websites reviewed, 3 did not have any content that explained the importance of making a death benefit beneficiary nomination; most beneficiary nomination forms, accessible from the websites reviewed, did not include sufficient information to assist members to understand the process of making a nomination; information provided about reversionary beneficiary nominations, which allows a nominated person (usually a spouse) to automatically receive a pension, often failed to flag important additional considerations relevant to this type of nomination; and information about death benefit nominations tended to be drafted in a complex, technical manner, and ASIC is concerned that the average Australian adult may struggle to understand what the average fund website has to say about making a nomination. ASIC is calling on trustees to urgently consider whether their arrangements for dealing with death benefit claims are fit for purpose. The full media release can be accessed here. Greenwashing: A view from the regulator On 2 May 2024, ASIC Chair Joe Longo gave a keynote speech on greenwashing at the RIAA Conference Australia. Mr Longo stated that ASIC considers greenwashing to be “the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical” which is consistent with market’s understanding of the greenwashing. The ASIC Chair noted that “good quality, reliable information is essential to market integrity, and to confident and informed decision-making by investors. And so when companies make misleading statements about ESG issues, it erodes trust in the market – and can lead to the misallocation of capital. Combating greenwashing is therefore critical to supporting trust. And ASIC’s role is to help shore up that trust, by finding the right balance between guidance, surveillance and enforcement.” Mr Longo illustrated that the main types of conduct which have caused ASIC to hand down penalties in relation to greenwashing include: net zero statements and targets, that were either made without a reasonable basis or that were factually incorrect; the use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’, that weren’t founded on reasonable grounds; the overstatement or inconsistent application of sustainability-related investment screens (see for example ASIC’s action against Active Super below); and the use of inaccurate labelling or vague terms in sustainability-related funds. The Chair also appealed to companies to start preparing to comply with the new climate reporting regime by stating that “it’s simply not an option for industry to put off preparations, and then scramble to comply. Reporting entitles have to be doing the work now – marshalling the data, embedding the capabilities, and keeping the necessary records.” The full speech can be viewed here. 3             ASIC wins first court outcome regarding a non-cash payment facility involving crypto assets On 3 May 2024, the Federal Court found that BPS Financial Pty Ltd (BPS) engaged in unlicensed conduct and misleading or deceptive conduct and made false or misleading representations when offering the ‘Qoin Wallet’, a non-cash payment facility which used a crypto-asset token called ‘Qoin.’  In delivering judgment for proceedings brought by ASIC, Justice Downes found that BPS contravened the Corporations Act 2001 (Cth) (Corporations Act) as it did not hold an Australian financial services licence, nor was it authorised by a licence holder, to issue or provide financial advice about the Qoin Wallet. ASIC Chair Joe Longo remarked “Crypto assets are highly volatile, inherently risky, and complex. This makes it critically important that providers have the appropriate licences and authorisations, and that investors are provided with clear and accurate information. This case is an important reminder that many crypto products are financial products and that providers need to hold a licence… Entities should not be making claims about features, or the regulatory status of their offerings, that are false or misleading”. The full media release can be viewed here. The full judgement can be viewed here. ASIC consults on updated guidance for carbon market participants On 6 May 2024, ASIC released a consultation paper on proposed updates to Regulatory Guide 236: Do I need an AFS licence to participate in carbon markets? for participants in the carbon market in relation to Australian financial services licensing requirements. The proposed updates address the implications of the safeguard mechanism reforms to the financial services and markets section of the Corporations Act, as well as changes in the regulatory landscape for carbon markets, particularly Australian Carbon Credit Units. ASIC will also update INFO 156 Regulated emissions units: Applying for or varying an AFS licence when the updated RG 236 is published. ASIC expect to publish this in the second half of 2024. The full media release can be viewed here. The consultation paper can be viewed here. ASIC reviews cold calling practices for superannuation switching business models On 7 May 2024, ASIC announced it had conducted a review of cold calling for superannuation switching business models, amid evidence of adverse consumer outcomes arising from unsuitable financial advice. ASIC observed considerable volumes of superannuation fund movement as a result of cold calling conduct, including inflow into platforms, high-risk property investments and significant payments to cold calling operators. ASIC is concerned that some high-pressure, cold calling for superannuation switching business models are providing unnecessary and inappropriate advice leading to poor outcomes for clients. These negative outcomes range from superannuation erosion due to high fees and charges, to a possible reduction in superannuation savings due to inappropriate investment in high-risk and/or low-quality superannuation investment options. ASIC is also concerned about the fragmented nature of some cold calling business models, particularly deliberate attempts to avoid legal liability or present the illusion of independence to consumers. ASIC’s analysis indicates that some business models may be engaging in misleading and deceptive conduct. ASIC urged superannuation trustees to review their processes to ensure they are not benefiting at the expense of people who become their members. ASIC states that trustees should have processes in place to identify practices that may be resulting in superannuation balance erosion, including from inappropriate advice fee charges. The full article can be viewed here. The full media release can be reviewed here. ASIC calls on super trustees to improve gatekeeping of member savings On 9 May 2024, ASIC called on superannuation trustees to renew efforts to protect members from unscrupulous operators amid evidence of inadequate oversight of advice fee deductions. A newly published ASIC report (REP 781 Review of superannuation trustee practices: Protecting members from harmful advice charges) outlined key findings from a review of the progress superannuation trustees had made in addressing deficiencies in their monitoring of fee deductions for the provision of financial advice. The review found that these deficiencies — brought to light through ‘fees for no services’ cases heard by the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry — continued to pose risks and cause detriment to members. ASIC urged superannuation trustees to reassess their oversight processes and consider the following steps to strengthen member protections: reviewing the ways financial advice documents are sampled to identify unscrupulous advisers providing harmful advice; objectively considering the caps on advice fee deductions​, including by using objective criteria to assess the cost of advice to help trustees determine appropriate fee caps;​  enhancing adviser onboarding practices​, including by vigilantly monitoring for financial advisers involved with cold calling businesses and using fact finds of advice licensees;​ and regularly checking ASIC’s Financial Adviser Register for unexpected adviser movements that might indicate a problem, maintaining watchlists and monitoring patterns or irregularities in advice fee deductions, withdrawals of member consent and rollovers into the fund.​ The full media release can be viewed here. ASIC issues information for unlicensed entities making unsolicited contact with consumers On 15 May 2024, ASIC issued Information Sheet 282 Unsolicited contact leading to financial advice (INFO 282), which outlines how financial services laws apply to unlicenced entities referring consumers to a third party for the provision of financial advice. These entities must comply with financial services laws to avoid substantial penalties. INFO 282 is also relevant to Australian financial services (AFS) licensees and financial advisers that receive consumer details obtained through unsolicited contact. The publication sets out requirements under the law, when making unsolicited contact, and when making digital contact. The full media release can be viewed here. ASIC announces 30 June 2024 focus areas and expanded program to support financial reporting and audit quality On 15 May 2024, ASIC outlined an expanded program of work to enhance the integrity and quality of financial reporting and auditing in Australia in achieving the broader goal of confident and informed investors. The announcement included ASIC’s focus areas for 30 June 2024. The announcement reiterated that for the first time, superannuation trustees are required to lodge audited financial reports for most superannuation funds with ASIC. Trustees will need to lodge within three months of the end of the fund’s 2023-24 financial year. ASIC reminded trustees that these reports must be lodged by the due date and in compliance with the relevant accounting standards and that superannuation funds will be included ASIC’s financial reporting and audit surveillance program. The full media release can be viewed here. ASIC releases guidance on the experienced provider pathway for financial advisers On 22 May 2024, ASIC released Information Sheet 281 FAQS: Relevant providers – Accessing the experienced provider pathway (INFO 281) to provide guidance to financial advisers and AFS licensees about the experienced provider pathway following changes to the law made by the Treasury Laws Amendment (2023 Measures No. 3) Act 2023. Since 1 January 2019, professional standards have applied to financial advisers. This includes the qualifications standard and the professional year standard. The experienced provider pathway enables financial advisers to be deemed as having met the qualifications and professional year standards without needing to undertake further education and training if they have: at least 10 years’ (cumulative) experience as an authorised financial adviser between 1 January 2007 and 31 December 2021; and a clean disciplinary record as at 31 December 2021 (i.e. they have not been banned or disqualified under Pt 7.6 of the Corporations Act or given an undertaking under s93AA or 171E of the ASIC Act 2001). The full media release can be viewed here. ASIC’s priorities in a changing regulatory environment On 22 May 2024, ASIC Commissioner Alan Kirkland gave a speech at the Australian Finance Industry Association  Risk Summit 2024. Mr Kirkland stated that ASIC will take a pragmatic approach to the supervision and enforcement of the government’s proposed mandatory climate-related disclosure regime when it comes into effect and that the regulator will develop guidance to help entities meet their obligations. The Commissioner also noted that whilst the direct reporting requirements are intended to apply only to large businesses and financial institutions, some small and medium sized businesses may need to engage with climate reporting considerations as a supplier to these large companies. Mr Kirkland also highlighted ASIC’s focus on addressing greenwashing in relation to superannuation and investment products. He outlined ASIC’s recent action in this area as well as more than 60 corrective disclosure outcomes, 17 infringement notices and a number of further inquiries and investigations underway. The full speech can be viewed here. Court finds Active Super made misleading ESG claims in ASIC greenwashing action On 5 June 2024, the Federal Court handed down a decision which found that LGSS Pty Limited (as trustee of the superannuation fund Active Super) (Active Super), had breached the law by making several misleading representations concerning its environmental, social and governance (ESG) credentials. ASIC alleged that Active Super’s had claimed in its marketing that it no longer made or had reduced certain  Russian investments as they posed too great a risk to the environment and the community, including gambling, coal mining and oil tar sands. However, the Federal Court found that from 1 February 2021 to 30 June 2023, Active Super invested in various securities directly and indirectly that it had claimed were eliminated or restricted by ESG investment screens. The Federal Court also found that Active Super published representations that were misleading and deceptive in relation to exclusions applied to gambling, coal mining, Russian entities and oil tar sands investments on its website, reports and disclosure. This matter has been listed for a further hearing where the Federal Court will consider the appropriate form of declaratory relief. The court will also consider the pecuniary penalty to be imposed at a later date. The full media release can be viewed here. The judgement can be viewed here. ASIC grants class no-action position to second party opinion providers On 14 June 2024, ASIC issued a class no-action position in response to approaches by industry participants about whether second party opinion (SPO) providers may be providing financial product advice that requires them to hold an AFS licence. This no-action position was issued because: it supports market integrity in sustainable finance through facilitating practices to verify claims that an investment has green credentials; with the conditions imposed, the identified regulatory benefits outweigh the regulatory detriment; and it is consistent with ASIC’s 2023-2027 Corporate Plan to ensure Australia’s approach to sustainable finance practices reflect global best practice. An SPO means an opinion, statement or report on the alignment or contribution of a financing instrument, program, or framework of an entity to industry-accepted environmental sustainability-based principles, as prepared by a person who is independent of the commissioning party. ASIC does not intend to take action for a contravention of the requirement to hold an AFS licence under section 911A(1) Corporations Act in relation to providing an SPO in connection with an offer to wholesale clients that involve the provision of financial product advice. The class no-action position sets minimum regulatory expectations for SPO providers which include: the SPO is made available in connection with an offer made available only to wholesale clients; there are adequate conflict management arrangements in place; the SPO is accompanied by certain disclosures; and the SPO is independent of the commissioning party. The class no-action will apply until the end of 15 June 2026 unless revoked or modified. The full media release can be viewed here. The ASIC class no-action letter can be viewed here. The regulatory guide relating to no-action letters can be viewed here. ASIC outlines its financial advice enforcement priorities On 18 June 2024, ASIC Commissioner Alan Kirkland addressed financial advice licensees at the Professional Planner Licensee Summit regarding ASIC’s priorities and current work in the area of financial advice. Mr Kirkland outlined that ASIC’s current enforcement priorities include: misconduct resulting in the systemic erosion of superannuation balances; compliance with the reportable situations regime; and its enduring priority of systemic compliance failures by large financial institutions resulting in widespread consumer harm. In relation to the reportable situations regime, Mr Kirkland stated that ASIC will take the appropriate action including enforcement action where it finds evidence of non-compliance. The full media release can be viewed here. ASIC reminds AFS licensees about new experienced provider pathway notification obligations On 26 June 2024, ASIC issued a reminder to AFS licensees regarding the upcoming notification obligations relating to the experienced provider pathway. Since 1 July 2024, AFS licensees were required to notify ASIC when they receive a written declaration from a financial advisor eligible for the experienced provider pathway. The pathway is an alternative way for financial advisers to satisfy the qualifications standard and the professional year standard by making a written declaration. Financial advisers who make a written declaration must provide a copy to their AFS licensee(s) as soon as practicable. AFS licensees will then have 30 business days to notify ASIC from the day they receive a written declaration. ASIC also provided guidance in Information Sheet 281 FAQs: Relevant providers – Accessing the experienced provider pathway on how AFS licensees can assure themselves that a financial adviser who has given them a copy of a written declaration is entitled to access the pathway. The full media release can be viewed here. ASIC calls on market intermediaries to strengthen supervision of business communications 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. On 26 June 2024, ASIC issued Information Sheet 283 Supervising your representatives’ business communications (INFO 283) in response to concerns that the use of unmonitored communication channels and encrypted communication applications in business communications can significantly increase the risk of misconduct going undetected. The Information Sheet provides practical guidance to market intermediaries on managing these risks, embedding supervisory arrangements for business communications, and reviewing their effectiveness in compliance with the requirements under the Corporations Act and ASIC market integrity rules. The Information Sheet also covers common challenges and pitfalls for market intermediaries in effectively supervising their representatives’ business communications, including: the emergence of new and popular communication channels that are outside the scope of their surveillance systems; weak or no controls to identify where data used in surveillance systems is incomplete or erroneous; and reliance on ’out of the box’ settings of vendor-provided communication surveillance systems and a failure to routinely calibrate alert parameters. The full media release can be viewed here. 16          APRA publishes letter to support implementation of the new private health insurance capital framework On 9 May 2024, APRA issued a letter to private health insurers (PHIs) which shares its observations from a number of its Internal Capital Adequacy Assessment Process  Summary Statements. It also shared feedback on the implementation of its new PHI capital reporting framework which commenced for PHIs from 1 July 2023 and seeks to bring PHIs into line with other insurance industries. The full media release can be accessed here. The letter can be accessed here. APRA has published further guidance on the Your Future, Your Super Performance Test On 7 June 2024, APRA published a set of new and updated frequently asked questions (FAQs) to provide further guidance on the administration of the Government’s Your Future, Your Super Performance Test. The new FAQs issued provide clarification on the following topics regarding the 2024 Performance Test: treatment of “Not Specified” and “Not Applicable” domicile type and listing type reporting; treatment of Separately Managed Accounts; and benchmark representative administration fees and expenses in the 12 months to March 2024. The full media release can be viewed here. The FAQs can be viewed here. APRA finalises cross-industry guidance on operational resilience On 13 June 2024, APRA issued its finalised prudential practice guide to assist banks, insurers and superannuation trustees improve their management of operational risk and enhance business continuity planning. The new Prudential Practice Guide CPG 230 Operational Risk Management (CPG 230) is designed to assist in the implementation of Prudential Standard CPS 230 Operational Risk Management (CPS 230), which was finalised in July last year and takes effect from 1 July 2025. The key changes within CPG 230 include: the guidance has been shortened and is more tightly focused on how to meet expectations set by the standard; entities that are classified as non-Significant Financial Institutions have an additional 12 months to comply with certain requirements in CPS 230 relating to business continuity and scenario analysis; APRA has included a “day one” checklist for entities to assist in their implementation of CPS 230; and APRA has provided a three-year forward plan of its intended approach to supervising CPS 230 to assist industry with implementation and planning. The full media release can be viewed here. APRA finalises superannuation prudential framework amendments for audit On 18 June 2024, APRA finalised its consultation on minor and consequential amendments to the superannuation prudential framework for audit. In its letter, APRA sets out its response to feedback from the consultation and issues final versions of the relevant prudential standards and guidance. The letter addresses the scope of reasonable assurance audit requirements and the retirement of the SPG 310 guidance and it additionally summarises the additional minor and consequential amendments to APRA’s prudential framework. The full media release can be viewed here. APRA releases letter on SPS 530 Valuation Governance Framework Self-Assessment Survey On 19 June 2024, APRA issued a letter to RSE licensees outlining key observations from the SPS 530 Valuation Governance Framework Self-Assessment Survey. This survey was conducted by APRA in late 2023 on unlisted asset governance practices to assess the implementation of the enhanced requirements contained in Prudential Standard SPS 530 Investment Governance and related guidance. In the letter, APRA noted that better practices that were observed across the majority of RSE Licensees included: checks and controls in place to ensure valuations fell within an expected reasonable range, with respect to external investment managers’ valuations and independent external valuers; and unlisted asset valuations were an area of focus in internal audit plans. However, APRA also noted some key areas where there is room for improvement including: the use of revaluation triggers for ongoing and interim valuations. This issue was identified as having the most room for improvement in the survey. Some RSE licensees did not have predefined triggers or did not describe clear triggers for revaluations; the frequency of valuations. Some unlisted assets were not valued at least quarterly as per SPS530; and the extent of Board scrutiny of unlisted asset valuations. This was particularly prevalent with platform trustees. The full media release can be viewed here. 21          APRA releases new digital Prudential Handbook On 19 June 2024, APRA announced the released of its new digital prudential framework in the form of the ‘Prudential Handbook’. This presents all APRA’s prudential standards, guidance and supporting information in a digital format which can be easily navigated and searched by users across a range of different regulated industries and the broader communities. It is part of APRA’s strategic initiative to modernise the prudential architecture by making the prudential framework simpler, clearer, and more adaptable. The full media release can be viewed here. The letter can be viewed here. 22          Treasury commences public consultation on the Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024 On 11 June 2024, Treasury announced the commencement of a public consultation on the Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024 (the DBFO Regulations). The DBFO Regulations support the implementation of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024 (the DBFO Act) which received royal assent on 9 July 2024. Together, the DBFO Act and DBFO Regulations represent the first tranche of the Government’s response to recommendations of the Quality of Advice Review (QAR) that was provided to the Government on 16 December 2022. The QAR recommendations sought to better enable the provision of high quality, accessible and affordable financial advice to retail clients. The DBFO Regulations: support written information or documentation requirements for the purposes of s 99FA of the Superannuation Industry (Supervision) Act 1993 to continue to be met electronically; remove requirements related to Fee Disclosure Statements, update record keeping obligations for new consent requirements and remove references to civil penalties which are removed in the DBFO Act; align requirements for Financial Services Guides and Website Disclosure Information and make other consequential amendments; streamline the regulations for conflicted remuneration in line with the changes to the DBFO Act; and ensure the informed consent requirements apply for benefits given in relation to a general insurance product where personal advice is provided. The public consultation closed on 8 July 2024. The full media release can be accessed here. The exposure draft of the DBFO Regulations can be accessed here. 23          AUSTRAC announces second stage of consultation on reforming Australia’s anti-money laundering and counter-terrorism financing regime is open On 2 May 2024, AUSTRAC announced that the second stage of consultation from the Commonwealth Attorney-General’s Department is open. The consultation aims to reform Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. The proposed reforms intend to extend existing obligations to “Tranche 2” entities, which include lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones. The reforms also aim to simplify and modernise the regime in line with international standards and best practice and reduce complexity and regulatory burden. Submissions closed on 13 June 2024. The full media release can be accessed here. The submission page can be accessed here. 24          AUSTRAC provides tips on cyber safety On 2 May 2024, AUSTRAC provided tips on protecting yourself online and remaining vigilant to avoid fake websites and possible scams. The announcement comes after several fake AUSTRAC websites were identified and shut down. Their top five tips are: Be suspicious of unsolicited requests; Verify the website’s authenticity; Review the website’s design and content; Verify the contact information; and Check Google search. The full media release can be accessed here. 25          AUSTRAC highlights importance of submitting suspicious matter reports On 2 May 2024, AUSTRAC released a case study that highlights the importance of submitting a suspicious matter report (SMR). SMRs help AUSTRAC provide actionable intelligence to law enforcement partners to disrupt serious crime, including child sexual exploitation. The full media release can be accessed here. 26          AUSTRAC Brendan Thomas On 2 May 2024, new AUSTRAC CEO released a statement. Mr Thomas stated: “At AUSTRAC we do sometimes take very strong action. Not doing so allows weaknesses in our systems to be exploited by those wishing to profit by doing harm. So we will continue to take that action. We will also continue to work in partnership with industry, together preventing the profits of organised crime.” The full media release can be accessed here. Mr Thomas has more recently spoken at the ACAMS Conference on 19 June 2024. At this conference, he discussed the importance of AUSTRAC’s work and the objectives of the proposed reforms to the AML/CTF regime. The speaking notes can be accessed here. 27          AUSTRAC and RegTech Association’s RegTech Symposium On 8 May 2024, AUSTRAC released a summary of the RegTech Symposium, held on 7 May 2024 in Melbourne. Co-hosted by AUSTRAC and the RegTech Association, attendees came together to hear how RegTechs can help businesses comply with their AML/CTF obligations. Topics included the importance of transaction monitoring programs and quality reporting. The full media release can be accessed here. The RegTech page can be accessed here. 28          AUSTRAC announces proposed penalty for SkyCity On 17 May 2024, AUSTRAC announced that they and SkyCity Adelaide Pty Ltd (SkyCity) have filed joint submissions in the Federal Court of Australia, proposing a $67 million penalty over the casino’s contravention of the AML/CTF Act. SkyCity admitted that its AML/CTF Programs did not meet the requirements of the AML/CTF Act and Rules, in contravention of section 81 and did not carry out appropriate ongoing customer due diligence, in contravention of section 36. The full media release can be accessed here. On 7 June 2024, the Federal Court of Australia accepted those submissions and ordered SkyCity to pay the $67 million penalty, as well as AUSTRAC’s costs of $3 million. The full media release for that announcement can be accessed here. 29          AUSTRAC accepts Enforceable Undertaking from Sportsbet On 30 May 2024, AUSTRAC announced that it had accepted an Enforceable Undertaking from Sportsbet Pty Ltd (Sportsbet) to uplift its compliance with the AML/CTF Act and Rules. The Enforceable Undertaking comes after AUSTRAC ordered Sportsbet to appoint an external auditor on 3 November 2022. Following careful consideration of the auditor’s findings, and Sportsbet’s willingness to cooperate and proactively work to meet its obligations, AUSTRAC has determined accepting an Enforceable Undertaking from Sportsbet is the most appropriate regulatory response. The full media release can be accessed here. 30          AUSTRAC meets with ASEAN counterparts to fight against transnational crimes On 30 May 2024, AUSTRAC announced that it had wrapped up a meeting with its ASEAN counterparts in Melbourne. The Financial Intelligence Consultative Group (FICG) is a group of Australasian and ASEAN financial intelligence units. Established by AUSTRAC and its Indonesian counterpart in 2016, it collaborates and shares actionable intelligence, which contributes to the safety and security of the financial systems in our region.  The FICG’s 2024 Plenary in Melbourne included representatives from Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Philippines, Singapore, Thailand and Vietnam. The head of the Cook Islands FIU and representatives from the Japanese FIU also attended as observers.  The full media release can be accessed here. 31          AUSTRAC released new guidance to combat the use of foreign students as money mules On 4 June 2024, AUSTRAC released a new financial crime guide to help businesses identify and report suspicious activity related to criminal networks targeting vulnerable international students and temporary residents as money mules. Criminal networks are known to target international students and other temporary residents as money mules, offering them a way to make money while living in Australia. Some money mules are unaware this activity is illegal, often believing their facilitation of fund transfers constitutes legitimate employment. The guide was developed by the Fintel Alliance, led by AUSTRAC, in partnership with the Australian Federal Police and the Australian Border Force. The full media release can be accessed here. The guide can be accessed here.