Mackay Chapman January 2025 ASIC Update

In this month’s ASIC update:

• Alan Kirkland addresses the Consumer Law Roundtable;
• Alan Kirkland addresses the Conexus Financial forum;
• Sanlam admits to inadequate oversight of authorised representatives;
• ASIC sues crypto company Binance Australia Derivatives for consumer protection failures;
• ASIC sues HSBC Australia for failures to protect customers from scams; and
• Regulatory Guide 133 on funds management and custodial services has been reissued.

Alan Kirkland gives address at Consumer Law Roundtable: the case for prohibiting unfair trading practices in financial services

ASIC Commissioner Alan Kirkland recently addressed the Australasian Consumer Law Roundtable in Melbourne, emphasising the need for the proposed prohibition on Unfair Trading Practices to include financial services.

He highlighted the complexities of financial products, which can be difficult for consumers to navigate due to their inherent risks and intangibility. This creates a power imbalance between consumers and firms, leaving consumers vulnerable to unfair practices. 

Mr Kirkland also pointed out the severe consequences of such practices in financial services, including the potential loss of retirement savings or being burdened with excessive fees.

With the increasing digitisation of financial services, he raised concerns about "dark patterns", i.e., manipulative tactics that make it easy to sign up for products but difficult to cancel them, as seen in buy-now-pay-later schemes. 

It was reiterated that now is the time to strengthen consumer law. A comprehensive prohibition on unfair trading practices would provide better protection for consumers and ensure fairer treatment within the financial services sector.

For more details on the proposed reforms, you can explore the full speech here.

Alan Kirkland addresses the Conexus Financial forum on better retirement outcomes as a sector-wide responsibility

At the Conexus Financial Professional Planner Researcher Forum, ASIC Commissioner Alan Kirkland spoke about the role of various entities in achieving better retirement outcomes. 

ASIC’s focus on better retirement outcomes is part of its 2024-25 strategic priorities. This includes improving services for superannuation fund members while also ensuring that entities involved in investment product ratings, selection, and financial advice, meet their obligations. 

As outlined in ASIC’s Report 779, Mr Kirkland discussed the need for super trustees, financial advisers, and advice licensees to ensure that persistently underperforming investment products are carefully monitored and addressed.

The report, published earlier in the year, examined how financial advisers and super trustees deal with underperforming investment options. It found that some trustees and advisers failed to adequately consider the long-term performance of these products, often over-relying on research houses’ ratings or product approvals. 

Mr Kirkland concluded by stressing that better retirement outcomes are the responsibility of all involved in the sector, not just super trustees. 

Effective collaboration, transparency, and rigorous monitoring will help ensure that superannuation products deliver the outcomes that Australians expect for their retirement.

Sanlam admits to inadequate oversight of authorised representatives

‍Sanlam Private Wealth Pty Ltd, the Australian arm of the South African financial services group Sanlam, has admitted to breaching its licence obligations and will review its compliance processes under an enforceable undertaking (EU) with ASIC.

ASIC's investigation revealed that Sanlam failed to adequately supervise its authorised representatives and corporate authorised representatives (CARs), including fintech firms offering online trading platforms and crypto-based products that posed risks to retail investors. 

At one point, Sanlam had 42 CARs and 71 authorised representatives operating under its licence, but its oversight processes were found to be insufficient.

ASIC found that Sanlam:

• Lacked adequate processes to ensure representatives complied with financial services laws;
• Had limited risk management systems;
• Did not allocate enough resources for risk management and compliance;
• Failed to maintain a sufficient number of qualified responsible managers; and
• Lacked a proper training program for its authorised representatives.

Under the EU, Sanlam is required to engage an ASIC-approved independent expert to review its systems and implement remedial actions. ASIC and the expert will monitor these steps to ensure compliance.

This action follows previous ASIC interventions to ensure licensees adequately supervise authorised entities. In August 2022, the regulator reminded licensees about the need for sufficient oversight resources and released a report on online trading providers in 2023.

In April 2024, ASIC secured a $1.25 million penalty against Lanterne Fund Services for similar breaches of its licence obligations.

Access the Court Enforceable Undertakings Register here.

ASIC sues crypto company Binance Australia Derivatives for consumer protection failures

ASIC has commenced legal proceedings in the Federal Court against Binance Australia Derivatives alleging it misclassified over 500 retail clients as wholesale clients, denying them important consumer protections. 

The alleged misclassification affected 83% of Binance's Australian client base from 7 July 2022 to 21 April 2023.

Retail clients trading crypto derivatives are entitled to consumer protections under Australian financial services laws, including receiving a product disclosure statement, access to a compliant dispute resolution scheme, and the provision of a target market determination. 

ASIC alleges Binance failed to provide these protections and did not ensure its services were offered efficiently, honestly, and fairly.

The regulator claims Binance failed to:

• Provide a Product Disclosure Statement (PDS) to retail clients;
• Make a Target Market Determination (TMD);
• Maintain a compliant internal dispute resolution system;
• Ensure its services were provided efficiently, honestly, and fairly;
• Meet the conditions of its Australian Financial Services (AFS) licence; and
• Ensure adequate training and competence for its employees.

ASIC is seeking penalties, declarations, and adverse publicity orders against Binance.

Earlier this month, ASIC published Consultation Paper 381, which seeks to update guidelines for digital assets and financial products.

ASIC sues HSBC Australia for failures to protect customers from scams

ASIC is suing HSBC Australia for failing to protect customers from scams allegedly leading to $23 million in losses. 

The regulator alleges that between January 2020 and August 2024, HSBC did not have sufficient controls in place to prevent unauthorized payments and failed to investigate scam reports within the required timeframes.

ASIC claims that between 2023 and 2024, HSBC took an average of 145 days to investigate scam reports and 95 days to restore customer accounts. In some cases, customers were left without full access for over a year. These failures are alleged to have breached both the Corporations Act 2001 (Cth) and the National Consumer Credit Protection Act 2009 (Cth).

ASIC is seeking penalties, declarations, and adverse publicity orders.

ASIC reissues Regulatory Guide 133 on funds management and custodial services

ASIC has reissued Regulatory Guide 133 (RG 133), which provides updated guidance for Australian financial services (AFS) licensees involved in asset holding. This includes responsible entities of registered managed investment schemes (MIS) and licensed custodial service providers. 

This updated version of RG 133 replaces the guidance issued in June 2022, reflecting recent regulatory changes and addressing emerging industry practices.

The revised guide incorporates updated references to key legislative instruments, including those that impose financial requirements on licensees. It also introduces specific recommendations for custodians of crypto-assets, recognising the increasing role of digital assets in the financial ecosystem. 

These revisions highlight the need for custodians of crypto related assets (classified as financial products) to implement robust information security controls and effective risk management processes to mitigate emerging risks.

ASIC emphasises that AFS licensees responsible for asset management and custodial services must adhere to these updated standards to ensure compliance with their obligations. 

The guide applies to a broad range of entities, including responsible entities of registered schemes, licensed custodians, managed discretionary account (MDA) providers, and investor-directed portfolio service (IDPS) operators. 

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.