In this update, we examine the latest regulatory and legislative developments in the fintech sector over the past month that are likely to have an ongoing impact on businesses and consumers.

On 19 February 2019, the Australian Securities and Investments Commission (ASIC) provided an update on its planned actions in response to the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission). In keeping with its broader strategic change to strengthen its governance and culture, ASIC plans to implement all twelve recommendations from the Royal Commission that were directed at ASIC and require no legislative change. Significantly for businesses, there will be over 60 additional penalty provisions that ASIC will be able to action that will have greater deterrence value.

As part of the Royal Commission’s recommendations to retain, strengthen and contemporise the ‘twin peaks’ model of financial regulation, ASIC will see its remit expanded and powers strengthened to regulate more entities under the Australian financial services regime. As discussed in our earlier update, there has been a wealth of enforcement activity with a 15% increase in the number of ASIC enforcement investigations on foot and a 50% increase in the number of ASIC enforcement investigations of misconduct by large financial institutions since 1 February 2018. With additional funding from the government, ASIC has pledged to adopt a ‘why not litigate’ approach.

Further, ASIC has announced it will establish a separate Office of Enforcement (Office) this year to centralise decision-making processes when determining whether to commence enforcement action. Whilst ASIC will retain decision-making responsibility for significant enforcement matters, the Office will be responsible for investigation and enforcement of breaches of laws that are within ASIC’s purview and will adopt Key Performance Indicators to be reported against annually.

ASIC has highlighted its commitment to increasing consumer trust and confidence in what ASIC chairman James Shipton called ‘a fair, strong and efficient financial system for all Australians’. Following the release of the Final Report, we can expect ASIC to take action against misconduct particularly where it results in harm to consumers or the broader financial market. Notably, ASIC has cancelled the Australian financial services licences of two financial services providers for non-compliance by failing to obtain membership to the Australian Financial Complaints Authority (AFCA). ASIC stated that “licensees need to be aware that failure to meet AFCA membership requirements is a serious breach of the law and ASIC will take action where licensees fail to meet this important obligation.”

Finally, the Government has also hinted it will make legislative changes in response to the Final Report recommendations and consider providing ASIC with additional funding in the 2019-2020 budget.

As well as the above, fintech business should note the following developments:

• Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2018 (Act) commences: From 13 March 2019, the Act significantly increases penalties and prison terms for corporate and financial sector misconduct and adds additional penalties for provisions which were not previously the subject of financial penalty. Notably, the Bill introduces a civil penalty for Australian financial services licensees to ensure that the financial services covered by their licence are provided ‘fairly, efficiently and honestly’ in accordance with section 912A of the Corporations Act. See previous update here.
• Treasury consults on enforceability of financial services industry codes: The Treasury released a consultation paper setting out implementation options for recommendation 1.15 of the Royal Commission’s Final Report on “making provisions of financial services industry codes of conduct more enforceable and providing both the regulator and consumers with more powers to hold financial services firms to account for misconduct”. The paper proposes to grant ASIC with additional powers to approve and enforce code provisions for a wider range of entities. Submissions are due 12 April 2019. 
• ASIC provides update on further review into fees-for-no-service (FFNS) failures: ASIC has released an update on its FFNS supervisory work at Australia’s major banking and financial services institutions. Noting that most of the institutions were yet to complete further reviews, ASIC indicated that key issues for these institutions were poor record-keeping, failure to propose reasonable customer-centric methodologies to identify and compensate customers, and too legalistic approaches to determination of required services. ASIC Commissioner Danielle Press welcomed the Government’s commitment to give ASIC new directions powers that could speed up remediation programs in the future.
• ASIC consults on coverage of ePayments Code review: ASIC has released a consultation paper regarding the effectiveness and relevance of the ePayments Code (Code) for complaints handling, unauthorised transactions, data reporting and mistaken internet payments. Since the Code’s last review in December 2010, there have been significant developments in the payment sector and the review will consider options for future-proofing the Code. The consultation is also seeking feedback on the extent to which the Code’s protections should be made available to small business consumers.
• The Government announces APRA capability review: The Treasury has announced a capability review of the Australian Prudential Regulation Authority (APRA) which will provide a forward-looking assessment of APRA’s ability to respond to an environment of growing complexity and emerging risks for APRA’s regulated sectors. Submissions are due 10 April 2010.
• ASIC consults on responsible lending conduct for licensees: ASIC has released a consultation paper regarding responsible lending conduct for credit licensees, credit applicants and unlicensed carried over instrument lenders. The consultation follows increased regulatory and enforcement action from ASIC, the Royal Commission, recent and upcoming initiatives such as comprehensive credit reporting and open banking, and technological change. The consultation seeks to establish whether Regulatory Guide 209 Credit licensing: Responsible lending conduct remains effective and to evaluate whether amendments may help credit licensees better understand ASIC’s expectations in relation to their responsible lending obligations. Submissions are due 20 May 2019. 
• Corporate whistleblower regime receives Royal Assent: The Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019 (Cth) (Whistleblower Act) received Royal Asset on 12 March 2019 and will commence on 1 July 2019. The Whistleblower Act will amend the whistleblower protections in the Corporations Act 2001 (Cth) so that a single, strengthened whistleblower protection regime will cover the corporate, financial and credit sectors. Additionally, the Act inserts a comprehensive regime into the Taxation Administration Act 1953 (Cth) for the protection of individuals who report breaches of tax laws or misconduct. The Whistleblower Act also makes other related amendments to various banking, insurance and superannuation-related legislation.
• ASIC releases report on licensing and professional registration applications 2017-2018: Notably, ASIC’s latest report assessing licensing and professional registration applications (excluding applications to be registered as a liquidator) shows that less than half of the 2,879 applications considered from July 2018 to June 2018 were approved.
• International developments in digital currency: There have been many developments in relation to digital currency. Click here to read more. 

Fintech fact: According to the Ernst & Young FinTech Australia Census 2018, there is a growing consensus that the Royal Commission’s findings will slow the focus on innovation over the next 12 to 18 months and almost half of the respondents surveyed found ‘building partnerships with banks and other financial institutions’ as their main external challenge.