Funds Update - 1 November 2024

In this Funds Update for 1 November 2024:

1. Federal Court case on misleading and deceptive conduct
2. ASIC consults on updates to RG 51 (applications for relief) and RG 108 (no-action letters)
3. ASIC releases 2023–24 Annual Report

 

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Federal Court case on misleading and deceptive conduct

On 28 October 2024, the Federal Court found that that a ‘pre-existing condition’ term (Term) in certain life insurance contracts issued by a life insurance provider was partially unenforceable and statements in the product disclosure statements (PDSs) describing the Term were liable to mislead the public, contravening s 12DF of the Australian Securities and Investments Commission Act (ASIC Act). The Federal Court also found that Term was not an unfair contract term within the meaning of s 12BG of the ASIC Act.

The Term purported to allow the life insurance provider to deny coverage if a customer did not disclose a pre-existing condition before entering into the contract, and a medical practitioner subsequently formed an opinion that signs or symptoms of the condition existed prior to the customer entering into the contract, even if a diagnosis had not been made. The Federal Court found that the Term was unenforceable under section 47 of the Insurance Contracts Act.

The Federal Court accepted ASIC’s submission that the PDSs purported to provide an accurate and complete statement of when benefits would and would not be payable under the policy and found that an omission to mention a qualification, in the absence of which some absolute statement made is rendered misleading, is conduct which should be regarded as misleading.

The Federal Court found that it was insignificant that the impugned conduct presented the products as less desirable than they actually are and that there is no requirement that the misleading and deceptive conduct be liable to mislead the public in a particular direction.

The ASIC media release can be found here and the full judgment can be found here.

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ASIC consults on updates to RG 51 (applications for relief) and RG 108 (no-action letters)

On 21 October 2024, ASIC announced a consultation on its proposed updates to Regulatory Guide 51 (applications for relief) (RG 51) and Regulatory Guide 108 (no-action letters) (RG 108), to reflect current regulatory approaches to such applications.

The proposed updates to RG 51:

• consolidate separate guidance on how ASIC charges fees for applications;
• combine relevant guidance on procedural fairness and rights of review;
• revise content on what to include when making an application; and
• amend the description of ASIC’s approach to applications, considering the decision in Lantern Hotel Group and Australian Securities and Investments Commission [2015] AATA 428.

The proposed updates to RG 108:

• simplify the existing guidance on ‘what is a no-action letter’ and ‘why ASIC gives no-action letters’;
• make minor changes to the factors that make it more likely that ASIC will give a no-action letter;
• consolidate guidance on no-action requests and class no-action requests to avoid repetition; and
• highlight the absence of review rights and the need to lodge an application through the ASIC Regulatory Portal and pay an application fee.

A copy of the updates and a more detailed summary of the changes proposed are available here.

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ASIC releases 2023–24 Annual Report

In a media release on 22 October 2024, ASIC announced that it has published its 2023–24 Annual Report (Report).

The Report outlines ASIC’s latest interventions including:

• its first win in a greenwashing civil penalty action;
• its first stop order on a life insurance product;
• its first infringement notice issued to a market operator;
• commencing around 170 new investigations, an increase of about 25% on the previous year; and
• increasing its new civil proceedings by 23% on the previous year.

In relation to the managed funds sector, the Report outlines that ASIC:

• focused on sustainability-related disclosure and governance practices across issuers of investment products, as well as surveillance of issuers of investment  products, focusing on the ‘reasonable steps’ obligations; and
• was successful in its first ‘licensee for hire’ case resulting in a $1.25 million penalty for the Australian financial services licence holder.

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