Mackay Chapman October 2023 ASIC Update

In this month’s ASIC update:

• APRA and ASIC have released an information package to assist the financial services industry in implementing the Financial Accountability Regime (FAR); 
• ASIC has initiated legal action in the Federal Court against Bit Trade Pty Ltd; 
• The Federal Court has ruled that Australia and New Zealand Banking Group Limited (ANZ) must pay a $15 million penalty after admitting to misleading customers; and
• ASIC has released its annual licensing report, Report 772.
   

‍APRA and ASIC commence joint administration of the new Financial Accountability Regime

APRA and ASIC have released an information package to assist the financial services industry in implementing the Financial Accountability Regime (FAR). The FAR enhances responsibility and accountability for APRA-regulated entities in banking, insurance, and superannuation sectors, along with their directors and top executives, aiming to bolster risk and governance practices within these institutions.

This follows recommendations from the Financial Services Royal Commission to extend provisions akin to the Banking Executive Accountability Regime (BEAR) to all APRA-regulated entities. The FAR, which replaces the BEAR, expands its scope to insurance companies, superannuation trustees, and licensed non-operating holding companies (NOHCs). It also introduces conduct-focused prescribed responsibilities and will be jointly administered by APRA and ASIC.

Key dates to note are the implementation of the FAR in the banking sector on March 15, 2024, and in the superannuation and insurance industries on March 15, 2025.

The information package includes the Joint Administration Agreement between APRA and ASIC, outlining the collaborative framework for administering the FAR, as well as a joint information paper guiding authorised deposit-taking institutions (ADIs) through the transition from BEAR to FAR, supported by ADI accountability statement guidance and template.

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‍ASIC sues crypto exchange alleging design and distribution failures

ASIC has initiated legal action in the Federal Court against Bit Trade Pty Ltd, the provider of the Kraken crypto exchange to Australian customers. The case centres on Bit Trade's alleged failure to adhere to design and distribution obligations for its margin trading product on Kraken. ASIC asserts that Bit Trade did not establish a target market determination for this product before offering it to Australian customers, as is required by law.

Bit Trade's margin trading product is considered a credit facility, granting customers credit for crypto asset transactions on Kraken, referred to as 'margin extension.' Customers can access credit up to five times the value of their collateral assets. Bit Trade has been offering this product to Australian customers since January 2020. 

ASIC Deputy Chair Sarah Court emphasised the significance of complying with regulatory obligations in the crypto industry to safeguard consumers. ASIC alleges that, since the design and distribution obligations came into effect on 5 October 2021, around 1160 Australian customers have incurred a collective loss of approximately $12.95 million using the margin trading product.

Despite ASIC's notifying Bit Trade of concerns in June 2022, Bit Trade has continued offering the product without a target market determination. ASIC seeks declarations, financial penalties, and injunctions to prevent further non-compliance.

The first case management hearing date has yet to be scheduled by the Court.

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‍ANZ penalised $15 million for misleading customers about available funds

The Federal Court has ruled that Australia and New Zealand Banking Group Limited (ANZ) must pay a $15 million penalty after admitting to misleading customers regarding the availability of funds in certain credit card accounts. The Court determined that ANZ violated the ASIC Act and the National Consumer Credit Protection Act by falsely implying that customers could access a cash advance from funds designated as their 'Available Funds' without incurring fees and interest.

ANZ failed to credit deposits into these credit card accounts, resulting in an inaccurate 'Available Funds' balance that was higher than the amount customers could withdraw without incurring fees or interest. Customers who obtained cash advances based on these misleading figures were charged fees and interest.

ASIC Deputy Chair Sarah Court emphasised the importance of providing customers with clear and accurate information about available funds and associated fees. Many ANZ customers relied on the displayed account information and incurred fees.

The Court also found that ANZ did not act efficiently, honestly, and fairly by not promptly addressing the issue. The bank's delay in resolving the problem was deemed unacceptable.

ANZ has already rectified over 186,000 accounts for fees and interest related to cash advances. The remediation program will repay affected ANZ customers who were charged cash advance fees between November 2018 and September 2021. The average remediation payment was around $45 per affected account.

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‍Fintech company pays penalties for crypto product representations

Fintech company Bobbob Pty Ltd has paid $53,280 in response to an ASIC infringement notice related to ASIC concerns about representations it made relating to a crypto-asset-linked investment product. 

ASIC raised concerns that Bobbob's representations were potentially misleading to consumers, as they indicated that the product was approved or licensed by ASIC, resembled a bank account with a similar risk profile, was a safe and stable investment with minimal risk, and offered a 7.6% annual interest rate.

ASIC Deputy Chair Sarah Court expressed the regulator's worry that these representations might have led customers to misunderstand the product they were investing in. During the eight-month period when the Savings Product was available, approximately 700 customers deposited around $1.6 million.

As part of the resolution, Bobbob and its sole director, Byron Goldberg, have provided a court-enforceable undertaking, including ceasing their roles as an authorised representative of an Australian Financial Services licensee, refraining from providing financial services to retail clients for 12 months, and not being involved in managing a business that offers financial services to retail clients for 12 months.

ASIC emphasised its commitment to taking enforcement actions against misleading promotions of crypto-asset-based products that could harm consumers, stressing the importance of accurate information due to the complex and volatile nature of crypto-assets.

Bobbob paid the infringement notices on 20 September 2023.  The payment of an infringement notice does not constitute an admission of guilt or liability.

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‍Licensing and professional registration activities - 2023 update

ASIC has released its annual licensing report, Report 772 Licensing and professional registration activities: 2023 update (REP 772). The report outlines ASIC's licensing and professional registration activities, including new and proposed process changes. This report also highlights other ASIC initiatives impacting licensees.

Warren Day, ASIC's Chief Executive Officer, emphasised the gatekeeping role of ASIC's Licensing function in ensuring that applicants seeking Australian financial services licences, credit licences, or professional registration meet the required high standards.

Between July 2022 and June 2023, ASIC:

• Received 1,272 applications for Australian financial services (AFS) licences and Australian credit licences (credit licences).
• Finalised 1,464 AFS and credit licence applications.
• Granted 332 new AFS licences and 149 new credit licences.
• Approved 867 AFS and credit licence variation applications from existing licensees.
• Approved the registration of 118 company auditors, 44 SMSF auditors, and supported the approval of 29 liquidators.

During the same period, 401 licence applications were withdrawn or rejected for lodgement, 515 licences were cancelled, and 26 licences were suspended. Additionally, 51 professional registration applications were withdrawn, and 4 were refused.

ASIC is actively making improvements to its licensing processes and systems, which include enhanced engagement with stakeholders during the application process, the development of a new licensing portal, and streamlining workflow systems to facilitate interactions with stakeholders.

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‍NAB penalised $2.1 million for unconscionable conduct over account fees

The Federal Court has ordered National Australia Bank Ltd (NAB) to pay a $2.1 million penalty for engaging in unconscionable conduct by persistently charging periodic payment fees despite knowing it was doing so wrongfully. 

ASIC Deputy Chair Sarah Court expressed concern over NAB's actions, stating that the bank continued to charge fees even when it was aware of its lack of entitlement, and failed to inform its customers. NAB took more than two years to rectify the situation, which was deemed unacceptable.

The Court's findings revealed that between January 2017 and July 2018, NAB engaged in unconscionable conduct by charging periodic payment fees without a contractual entitlement to do so. This wrongful charging affected 2,888 personal banking customers and 513 business banking customers, with NAB charging fees on 74,593 occasions, totalling $139,845.

Justice Derrington concluded that NAB prioritised its self-interest while customers remained unaware of the wrongful charges, taking advantage of their ignorance. The bank allowed overcharging to continue while seeking a solution without sufficient diligence. This behaviour reflected an inherent sense of entitlement and a corporate culture that did not prioritise compliance with the law or respect for customers' legal rights.

The penalty imposed by Justice Derrington was the maximum for the single contravention, but he noted that this amount was "woefully insufficient" in the circumstances. His Honour noted that relevant provisions of the ASIC Act had been amended to allow for substantially higher penalties.

In addition to the $2.1 million penalty, NAB has paid approximately $9 million in remediation to customers affected by incorrect periodic payment fees charged since August 1, 2001.

Justice Derrington also ordered NAB to publish an adverse publicity notice on its website and cover ASIC's costs.

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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.