Following the handing down of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s Interim Report, regulators including the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) have indicated that they are likely to increase their enforcement action in the future.

APRA and ASIC have since commenced internal reviews of their respective enforcement policies and procedures. APRA has announced its Terms of Reference for a “forward-looking examination of APRA’s approach to the use of enforcement to achieve its prudential objective of ensuring that financial promises made by its supervised institutions are met within a stable, efficient and competitive financial system.” APRA noted that the final review will be presented to members by 31 March 2019 before it is publicly released together with APRA’s enforcement strategy ASIC has tabled the terms of reference for its review with Parliament and the Government has released draft Corporations Amendment (Design and Distribution Obligations and Product Intervention Powers) Regulations 2018, which enhances the design and distribution obligations regime and introduces a product intervention power for ASIC to prevent significant consumer detriment.

At the Financial Services Institute of Australasia’s 'the Regulators' panel event, ASIC Commissioner John Price, asserted that ASIC would “adapt and evolve in responding to the rapid changes in the financial sector”. Taking a three-pronged supervisory approach, the Commissioner noted that ASIC will implement more intensive supervisory measures by embedding ASIC staff onsite in major financial institutions, strengthen its supervision and enforcement in the superannuation sector and use its Corporate Governance Taskforce to undertake targeted reviews of corporate governance practices in large listed entities.

In its 2017-18 Annual Report, ASIC noted that it has completed 124 investigations and conducted over 1200 surveillances. With respect to fintechs, ASIC noted that it had provided informal assistance to 105 start-up firms in 2017-18 via its Innovation Hub with common business models including crowd-sourced equity funding, payments, and markets in financial products. In 2017-18, there has also been increased uptake of the regulatory sandbox with six entities making use of the licensing exemption.

The Innovation Hub has also been instrumental in ASIC’s continued interest in regtech. At the Monash Centre For Commercial Law and Regulatory Studies Symposium, the ASIC Commissioner Mr Price noted that the Innovation Hub “drives a lot of ASIC’s practical support for regtech” such as facilitating over 70 meetings with regtech stakeholders and service providers.

ASIC has welcomed the start of the Australian Financial Complaints Authority (AFCA). From 1 November 2018, customers have had access to AFCA’s free dispute resolution scheme. Financial services and credit licensees must notify ASIC of their AFCA membership details by 30 November 2018. Credit licensees should note that they also notify ASIC of the AFCA membership details of their authorised credit representatives who are AFCA members.

Significant fintech sector developments:

• ASIC consults on competence requirements for advice licensees: ASIC has released a consultation paper regarding organisational competence for licensees. Currently, there are five options for demonstrating the knowledge and skills of responsible managers and ASIC proposes adding a sixth option capturing standards highlighted in recent professional standards reforms. ASIC has also proposed introducing the requirement for advice licensees to have at least one responsible manager who falls under this option 6. Submissions are due 6 December 2018.
• ASIC extends relief for non-cash payment (NCP) facilities: ASIC has amended ASIC Corporations (Non-cash Payment Facilities) Instrument 2016/211 to remove the sunset date of March 2019. The relief covers NCP products such as low value payment products, traveller’s cheques, and loyalty schemes.  The Government and regulators are currently in the process of clarifying policy settings for retail payment products, with ASIC indicating that it will review the NCP regulatory framework following this clarification.
• Reserve Bank of Australia (RBA) consults on New Payments Platform (NPP): The RBA has announced consultation into the functionality of, and access to, the NPP. The NPP, launched in February 2018, is a fast payments system that allows financial institutions to provide immediate funds to payment recipients, regardless of the financial institution the recipient banks with. The RBA is particularly concerned with whether the existing ways of accessing the NPP are adequate for different business models. The consultation will close 30 November 2018.
• APRA releases Banking Executive Accountability Regime (BEAR) guidance: APRA has released an information paper to assist authorised deposit-taking institutions (ADIs) with the implementation of BEAR and provide guidance with respect to meeting legislative obligations. BEAR legislation was enacted in February 2018 and set out clear expectations for ADIs, their directors and senior executives as well as consequences for failure to meet these expectations. The information paper has been designed to be read alongside Part IIAA of the Banking Act 1959 (Cth) and the revised explanatory memorandum.
• APRA releases finalised information security management prudential standard: Following consultation, APRA has released the final version of Prudential Standard CPS 234 Information Security. The Standard requires APRA-regulated entities to clearly define information security roles and responsibilities, maintain capabilities appropriate for the size and extent of threats to information assets, implement controls and testing of said controls, and to promptly notify APRA of material information security incidents. All APRA-regulated entities will be expected to meet such requirements by 1 July 2019.
• Treasury Laws Amendment (Australian Consumer Law Review) Act 2018 (ACL Review Act) receives royal assent: The ACL Review Act received royal assent, resulting in amendments to the Competition and Consumer Act 2010 (Cth), the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). The amendments are intended to "clarify and strengthen" consumer protections, notably extending ASIC and the Australian Competition and Consumer Commission’s investigative powers with respect to assessing possible unfair contract terms. Further, the ACL Act amends the ACL protections in the ASIC Act to clarify that they apply to financial products as well as financial services.
• Senate Economics Reference Committee (Senate Committee) launches inquiry into non-bank lenders: The Senate Committee has launched its Inquiry into credit and financial services targeted at Australians at risk of financial hardship. The Inquiry is particularly concerned with the operations of payday lenders and consumer lease providers, unlicensed financial service providers including ‘buy now, pay later’ providers and short term credit providers, debt management firms, debt negotiators, credit repair agencies and personal budgeting services. Submissions closed earlier this month and the Senate Committee is due to report by 22 February 2019.
• Treasury Laws Amendment (Gift Cards) Act 2018 (Gift Cards Act) receives royal assent: The Gift Cards Act, which introduced a national regime of regulating gift cards, received royal assent. The Gift Cards Act introduced mandated minimum expiry dates for gift cards and banning post-purchase fee while the associated Treasury Laws Amendment (Gift Cards) Regulations 2018 specifies items that are not gift cards and exempts gift cards, persons or gift cards supplied in certain circumstances from some or all of the regulatory requirements. The regulations will apply to gift cards supplied on or after 1 November 2019.
• 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 Finastra inaugural Open Banking Readiness Index, which surveyed across 14 markets in the region, Australia is the second most prepared for the roll out of Open Banking. Though only 25% of Asia-Pacific banks are in the advanced stage of data-based transformation, 85% of banks agree that “a platform” is essential to binding the customer, business and technology capabilities.