In this Funds Update for 12 April 2024:
- AFSL duty breaches found in CAR business
- Parliament introduces conflicted remuneration changes
- ASIC appeals decision that crypto asset is not a financial product
- Parliament introduces sustainability reporting bill
- Treasury releases draft legislation encouraging BTR investment
AFSL duty breaches found in CAR business
On 11 April 2024, the Federal Court found that Lanterne Fund Services Pty Ltd (Lanterne), which operated a corporate authorised representative (CAR) business with over 60 CAR and 205 authorised representatives (ARs), had breached six of the general obligations of AFS licence holders by failing to:
- have adequate risk management systems;
- have adequate technological and human resources to provide services covered by its licence;
- ensure representatives were adequately trained;
- maintain the competence to provide financial services covered by its AFS licence;
- take reasonable steps to ensure that its representatives complied with Australian financial services laws; and
- do all things necessary to ensure that the financial services covered by the licence were provided efficiently, honestly and fairly.
Lanterne had one full time employee and director and had admitted that it:
- did not have a documented risk management system or any systems or processes to identify, assess or mitigate risks and did not have an adequate IT infrastructure, IT resources plan, security management plan, IT back-up protocol or disaster recovery plan (and maintained its records using a paper filing system until September 2020);
- was reliant on CARs self-reporting compliance breaches to Lanterne and had no documented review or audit process to assess whether a representative was complying with financial services laws;
- conducted no discernible due diligence on the CAR and only limited background checks on the individuals involved with the CAR;
- did not have enough appropriately qualified responsible managers with sufficient time to conduct their roles and had insufficient human resources to enable it to monitor and supervise its representatives; and
- did not offer or provide training to its CARs or ARs, did not require evidence or information about training, and did not maintain any records of training.
Lanterne must pay a $1.25 million penalty and implement the recommendations of an independent expert to be appointed to review and report on Lanterne’s systems, processes and controls. The full judgment is available here.
Back ^
Parliament introduces conflicted remuneration changes
On 27 March 2024, Parliament introduced the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill. We reported on the draft exposure legislation for this Bill in a previous funds update on 17 November 2023. As noted in that update, the Bill proposes to amend the law on conflicted remuneration under the Corporations Act (the Act).
The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 20 June 2024. Submissions to the inquiry close on 26 April 2024.
Back ^
ASIC appeals decision that crypto asset is not a financial product
On 10 April 2024, ASIC announced it has appealed the Federal Court’s decision that a crypto-asset related investment was not a debenture and not a financial product.
The decision was handed down 14 March 2024, and covered in a previous funds update.
Back ^
Parliament introduces sustainability reporting bill
On 27 March 2024, Parliament introduced the Treasury Laws Amendment (Financial Market Infrastructure and other measures) Bill. We reported on the draft exposure legislation for this bill in a previous funds update on 2 February 2024.
There have been some limited developments since this update, including that the obligation to prepare sustainability reports under this bill now applies to the relevant reporting entities with financial years starting on or after 1 January 2025 (instead of 30 June 2024).
The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 30 April 2024. Submissions to the inquiry close on 11 April 2024.
Back ^
Treasury releases draft legislation encouraging BTR investment
On 9 April 2024, Treasury released draft exposure legislation encouraging investment in the build-to-rent (BTR) housing developments announced in the 2023-24 budget. The draft legislation proposes to encourage investment by way of two main tax concessions for eligible BTR developments:
- increasing the capital works depreciation rate from 2.5% to 4% per year; and
- reducing the withholding tax rate on fund payments from managed investment trusts (MITs) that invest in BTR developments from 30% to 15%, for a 15 year period once operations commence.
BTR developments must also meet a set list of conditions to qualify for the concessions, including a requirement that at least 10% of dwellings in the development must be designated as affordable housing.
The concessions only apply to developments that commenced construction after 7:30 pm AEST on 9 May 2023. The draft exposure legislation is open for consultation until 22 April 2024. For more information see our article at this link.
Back ^
Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.