Funds Update - 20 September 2024

In this Funds Update for 20 September 2024:

1. ASIC issues updated guidance on DDO (RG 274 and report 795)
2. Parliament tables a Bill to amend the AML/CTF Act
3. Treasury publishes exposure draft legislation for the Scams Prevention Framework
4. Treasury publishes final report for the Statutory Review of the Meetings and Documents Amendments
5. ASIC releases Enforcement and Regulatory update for the first half of 2024
6. Parliament introduces a Bill to implement Privacy Act reforms
7. ASIC publishes regulatory guide for the ASIC Derivative Transaction Rules (Reporting) 2024

 

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ASIC issues updated guidance on DDO (RG 274 and report 795)

On 10 September, ASIC re-issued RG 274 on design and distribution obligations (DDO), following publication of Report 795 ‘DDO: Compliance with the reasonable steps obligation’ (the Report).

The Report summarises ASIC’s key observations on how issuers are complying with the reasonable steps obligations. The observations cover:

• the selection and supervision of distributors;
• training staff;
• marketing and use of promotional materials;
• the use of questionnaires; and
• the use of information and monitoring outcomes.

ASIC has made changes to RG 274 to the effect that ASIC’s position is now that:

• the appropriateness requirement in section 994B(8) of the Corporations Act 2001 (Cth) (the Act) does not require any content to be included in the target market determination (TMD) but that issuers are encouraged to explain in the TMD why the product, including its key attributes, is likely to be consistent with the likely objectives, financial situation and needs of consumers in the target market; and
• the issuer must still specify in its TMD appropriate conditions and restrictions on the distribution of the financial product (distribution conditions) but that issuers are encouraged to explain in the TMD why these distribution conditions will make it more likely that the consumers who acquire the product are in the target market.

In the previous RG 274, ASIC’s position had been that the TMD must specify why:

• the product, including its key attributes, is likely to be consistent with the likely objectives, financial situation and needs of consumers in the target market; and
• the distribution conditions will make it likely that the consumers who acquire the product are in the target market.

ASIC has also updated RG 274 to address other changes, including:

• the changes made under ASIC Corporations (Design and Distribution Obligations Interim Measures) Instrument 2021/784 including in relation to nil reporting and that the giving of a PDS when giving personal advice is excluded conduct; and
• that a significant dealing report can be made through ASIC’s regulatory portal.

You can read ASIC’s Report 795 here, and access the updated RG 274 here.

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Parliament tables a Bill to amend the AML/CTF Act

Following two rounds of consultation, on 11 September 2024 a Bill to amend the Anti-money Laundering and Counter-terrorism Financing Act 2006 (Cth) (the AML/CTF Act) was introduced in Parliament (the Bill). Among a number of other changes, the Bill proposes to update the concept of AML/CTF Programs (a new definition embedding the risk assessment is proposed), the customer due diligence provisions have been re-written and the tipping off offence will be reformed. The legislation would also reframe the application of the AML/CTF Act to operations outside of Australia.

Significant detail will be left to the Anti-money Laundering and Counter-terrorism Financing Rules 2007 which will be separately consulted on. Changes will take effect in a staggered period with some changes taking effect shortly after Royal Assent, others with a commencement date of 31 March 2026 or 31 July 2026.

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Treasury publishes exposure draft legislation for the Scams Prevention Framework

On 13 September 2024, Treasury published exposure draft legislation implementing the Scams Prevention Framework (the Framework). The Framework is proposed to apply to banks, telecommunications and digital platform service providers.

The Framework has the following features:

• overarching principles that apply to regulated entities;
• sector-specific codes that apply to regulated sectors;
• a multi-regulator framework; and
• dispute resolution mechanisms (including external dispute resolution schemes).

Treasury is accepting feedback on the exposure draft legislation until 4 October 2024. You can access the draft legislation and explanatory memorandum, and find out more about making a submission, here. 

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Treasury publishes final report for the Statutory Review of the Meetings and Documents Amendments

On 9 September 2024, Treasury published the final report (the Final Report) for the Statutory Review of the Meetings and Documents Amendments (the Review). We have reported on the Review in previous Funds Updates, on 12 July and 28 June 2024.

The Final Report made 11 recommendations in relation to the meetings and documents amendments, including that:

• non-listed entities, such as proprietary companies and unlisted registered schemes, should be permitted to determine the appropriate meeting format and there should be no statutory requirement for constitutional permission for wholly virtual meetings;
• the Government should undertake a review of the format of AGMs and other members’ meetings in 5 years’ time; and
• there should be an examination of whether the power to act for a company in relation to company documents should be extended to corporate entities.

The Final Report otherwise supported maintaining the current laws, including in relation to:

• meeting formats for listed public companies and listed registered schemes;
• the requirement for listed companies and registered to vote on substantive resolutions via poll;
• independent reports on polls;
• electronic signing and execution; and
• electronic distribution of meeting related materials.

You can read the Final Report here.

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ASIC releases enforcement and regulatory update for the first half of 2024

On 9 September 2024, ASIC released its Report 794 enforcement and regulatory update for the first half of 2024.

This report noted that in the first half of 2024, ASIC was successful in 95% of its civil and criminal prosecutions and secured $32 million in civil penalties imposed by courts. It also identified ASIC’s 2024 enforcement priorities, which includes:

• enforcement action targeting poor distribution of financial products;
• misleading conduct in relation to sustainable finance including greenwashing; and
• compliance with the reportable situations regime.

You can read this report here. We have reported on ASIC’s update to its corporate plan and strategic priorities in a previous Funds Update.

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Parliament introduces a Bill to implement Privacy Act reforms

On 12 September 2024, Parliament introduced the Privacy and Other Legislation Amendment Bill 2024 (Cth) (the Bill). The Bill introduces the first tranche of reforms following the Government’s response to the Attorney-General’s 2022 Privacy Act Review Report.

HSF has published insights into the impacts of the reforms, accessible here.

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ASIC publishes regulatory guide for the ASIC Derivative Transaction Rules (Reporting) 2024

ASIC has issued an updated RG 251 for derivative transaction reporting (Updated RG 251), to support the ASIC Derivative Transaction Rules (Reporting) 2024 (the 2024 Rules) which commence on 21 October 2024.

Given the extent of the changes brought about by the 2024 Rules, ASIC has stated on its website that it will take a measured approach to compliance until March 2025 for reporting entities that make reasonable efforts to comply with the 2024 Rules, but will take action where it identifies deliberate or systemic breaches, or where reporting entities fail to make all reasonable endeavours to be compliant.

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