“Assured Support .. have taken to calling the October period ‘Red October’, such is the alarming congestion of reforms to hit the industry.”

— Tahn Sharpe, Professional Planner, 20 August 2021

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Brace yourself

You’ll be pleased to know that even though they expect Licensees to have these reforms under control, ASIC recognises that “there will be a period of transition as industry finalises implementation of additional compliance measures”

We recommend that you read 21-213MR but we’ll summarise the four key reforms below:

• Reference Checking
• Breaches
• Design and Distribution Obligations
• Complaints

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Reference Checking

“From 1 October 2021, licensees must comply, as an obligation under their licence, with the ASIC Reference checking and information sharing protocol.”

— ASIC Corporations and Credit (Reference checking and information sharing protocol) Instrument 2021/429

Commencement Date: 1 October 2021

Summary:

• Compliance with ASIC Instrument (2021/429) is mandatory from 1 October 2021;
• It’s a licence condition and subject to breach reporting requirements;
• Recruiting licensees must request a reference about the prospective representative from the referee licensee(s);
• The referee licensee(s) must then share information with the recruiting licensee about the prospective representative by giving a reference.
• Recruiting Licensees must seek written consent from a prospective representative to request a reference and if consent is given – request a reference from the referee licensee(s) in accordance with the ASIC protocol.
• The referee licensee(s) must then share information with the recruiting licensee about the prospective representative by giving a reference.

ASIC Instrument

Reference Template – Adviser

Reference Template – Credit

HB322

Red Flags:

• It’s a licence condition so contraventions are ‘deemed significant’ breaches.
• As long as they are factual, accurate and complete your reference checking responses are protected by the defence of ‘qualified privilege’ but it’s important to appreciate that it does not apply to any information you share that you are not obliged to give.
• If a prospective representative refuses to provide consent, you can still employ or authorise them BUT carefully consider how you’ll be able to demonstrate that you complied with your licensee obligations.

Related Content:

Tell me who are you

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New Breach Regime

“Financial supervision is increasingly driven by data, with regulators requiring data of greater granularity and at a greater frequency.”

—  Institute of International Finance, March 2016

Commencement Date: 1 October 2021

Summary:

The key features of the amendments to the breach reporting regime for financial services licensees include:

• the introduction of two new significance tests. 

• an expansion of the kinds of situations that need to be reported by licensees to ASIC (which are referred to as ‘reportable situations’) to include:
  • investigations into whether a significant breach has occurred or will occur if the investigation continues for more than 30 days, and the outcomes of those investigations;
  • conduct that constitutes gross negligence or serious fraud;
  • conduct that amounts to misleading or deceptive conduct under the financial services law; and
  • serious compliance concerns about individual financial advisers operating under another licence;
• requiring licensees to lodge breach reports with ASIC in the prescribed form, and within 30 calendar days after the licensee first knows that, or is reckless with respect to whether there are reasonable grounds to believe, a reportable situation has arisen; and
• requiring ASIC to publish data about breach reports on its website.

RG78

Red Flags:

• At the risk of over-simplification, the new regime requires Licensees to report serious compliance concerns they have about any Licensee or financial adviser engaged by another Licensee. Reporting Licensees have the benefit of qualified privilege against defamation and breach of confidence actions for ‘good faith’ reporting but operationalising this requirement may prove challenging.
• A Licensee is required to notify ASIC within 30 days if there are reasonable grounds to believe that a “reportable situation” has occurred or is likely to occur.
  • the licensee or a representative has breached a “core obligation” (one or more of the licensee obligations under s912A and 912B) and the breach is significant;
  • the licensee or a representative is no longer able to comply with a core obligation and the breach, if it occurs, will be significant;
  • the licensee’s investigation into a reportable situation continues past 30 days;
  • the licensee or a representative has engaged in conduct constituting gross negligence; and
  • the licensee or a representative has committed a serious fraud.
• Essentially, a breach of a core 912A or 912B obligation will be deemed to be significant if it involves:
  • the commission of an offence punishable by a sentence of 12 months or more (or three months or more for offences involving dishonesty), 
  • a contravention of a civil penalty;
  • misleading or deceptive conduct in relation to financial products or services; or 
  • a contravention that is likely to result in material loss or damage to a retail client. 
• The challenge is that the civil penalty regime covers a wider range of provisions in financial services laws, including:
  • the general obligations of Australian financial services licensees;
  • the obligation to lodge breach reports with ASIC;
  • the disclosure requirements in Chapter 7;
  • the general obligations of credit licensees; 

Related Content:

Our “New Breach Regime” webinar

Questions about breaches

Confession, repentance and testimony: The new breaches regime

In the new breach regime, what are ‘reportable situations’?

In the new breach regime, what are the ‘civil penalty provisions’?

In the new breach regime, what are the AFSL’s core obligations?

In the new breach regime, what are the ACL’s core obligations?

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Design and Distribution Obligations

“One of the key sources of community and consumer frustration with the financial services sector is the divergence between what is promised and what is delivered over time.”

— Peter Kell (2018). “How financial services firms can act to meet community expectations through transparency and accountability”

Commencement Date: 5 October 2021

• Potentially, one of the most significant reforms of financial services since FSRA;  
• Encompasses design, issue, distribution,  intervention and enforcement; 
• Requires a Product Issuer to prepare a Target Market Determination (TMD) for each product;
• Requires a Distributor to take reasonable steps to comply with the TMD;
• Requires a Distributor to track, record and escalate any breaches or complaints.
• It excludes:
  • a MySuper product; or
  • a margin lending facility; or
  • a security that has been or will be issued under an employee share scheme; or
  • a fully paid ordinary share in a company or a foreign company; or
  • a financial product issued, or offered for regulated sale, by an exempt body or an exempt public authority; or
  • a financial product of a kind prescribed by regulations.

RG274

Red Flags:

• Distributors are prohibited from distributing a product unless a current target market determination is in place and must take reasonable steps so that distribution is consistent with the most recent target market determination. How will you practically manage this?
• Distributors must maintain records
• Distributors must provide to offerors numbers of complaints about the product 
• Distributors must notify a product’s offeror, and an offeror must notify ASIC, of a significant dealing.
• “The combination of civil and criminal penalties allows ASIC or the prosecutor (as the case may be) to take a proportional approach to enforcing the new obligations.” Penalties range between:
  • 50-200 penalty units ($11,100- $44,000)
  • Corporations ($55,500 – $222,000)
  • 12 months – 5 years imprisonment

Related Content:

D&D for Beginners

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The new complaints regime

“[An expression] of dissatisfaction made to or about an organization, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required.”

— ASIC REGULATORY GUIDE 271, @271.27-29

Commencement Date: 5 October 2021

Summary:

• RG271 (which replaces RG165) becomes enforceable from 5 October 2021;  
• Broad application with a new, more expansive definition: 
• The introduction of enforceable paragraphs;
• The requirements are premised on data-driven and integrated IT solutions; and 
• ASIC will publish data about complaints on its website. 

RG271

RG165

Data Dictionary

Data Glossary

Red Flags:

• You’ll need a public complaints policy that explains
  • How consumers may lodge a complaint (e.g. online, by email, by phone and in person);
  • The options available to assist complainants who might need additional help to lodge their complaint;
  • Your key steps for dealing with complaints;
  • Your response timeframes; and
  • How they can access AFCA if their complaint is not resolved.
• You now have to acknowledge a complaint within 24 hours of one business day of receiving it, or as soon as is practicable.
• You must take into account the method used by the complainant to lodge their complaint and  any preferences they may have expressed about communication methods (i.e. email, post or social media channels).
• Your people will have an obligation to proactively identify people who might need additional assistance. 
• Your IDR Team need to be adequately resourced and appropriately authorised (with appropriate delegations) to resolve complaints. 
• ASIC expect you to be able to demonstrate:
  • an organisation-wide understanding of the definition of ‘complaint’ and the types of matters that must be dealt with in a firm’s IDR process;
  • more effective capture, tracking, analysis and reporting of complaint data;
  • improved timeliness and efficiency;
  • enhanced quality of written communications and IDR responses;
  • stronger complaint management skills;
  • an organisation-wide accountability for complaint management; and
  • leveraged technology and data analytics to improve both the IDR process and the products and services offered by financial firms.
• You will need to monitor key metrics for complaint management on an ongoing basis. 
• You will need to record and report extensive information regarding complaints including
  • the number of complaints received and closed; 
  • their nature; 
  • the time taken to acknowledge; 
  • the time taken to resolve; 
  • complaint outcomes; 
  • possible systemic issues; and 
  • the number of complaints escalated to AFCA.

Related Content:

Fixing complaints

Dispute resolution, compensation and moral hazards

ASIC, AFCA and complaints

The impact of complaints: New requirements, new challenges

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