When utmost good faith is not good enough

Written by Philip Hopley

There is just over a month left for stakeholders to provide views on a proposed model that will implement the government’s policy to apply unfair contract terms legislation to life and general insurance contracts for consumers and small businesses. To find out more, click here.

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Filed under Australia, Financial Products & Advice, Financial Services Regulation, Life Insurance

Contrasting Regulatory Approaches to FinTech

Written by Amy Ciolek, Nicola Greenberg and Kishaya Delaney

Various crypto news sites are publishing that the UK’s Financial Conduct Authority (FCA) has accepted 11 blockchain-based financial service providers into its recent (4th) SandBox cohort.  This includes startups testing cryptoasset offerings.  The FCA has stated: “We are keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks”.  Continue reading

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Filed under ASIC Guidance, Australia, Banking, Digital Currency, Financial Services Regulation, Fintech, ICO

Cyborg Advice

Written by the one and only Michael Vrisakis

Yesterday’s Financial Review contained an article by James Eyers (page 22) which touched on what we will call “Cyborg Advice”; that is hybrid advice involving man and machine.

The article notes that developments such as open banking and broader “customer data rights” are likely to push advice to be focused on the specific and not the general. Continue reading

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Filed under ASIC Guidance, Financial Products & Advice, Privacy & Open Banking

Current APRA Superannuation Initiatives

This page is an extract from the presentation addressing current APRA superannuation initiatives, and in particular:

  • APRA Related Party Arrangements Thematic Review
  • APRA Discussion Paper – Post-implementation review of APRA’s superannuation prudential framework

We hope that this summary and overview of key points is helpful.  Please let get in touch with Sarah Yu or Michael Vrisakis if you would like to discuss any aspect of these initiatives, or the presentation extract.

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Filed under Australia, Uncategorized

Community Expectations – Code or Codification?

By Michael Vrisakis

The Royal Commission has become a channeling medium for community expectations as a standard of conduct.  One of the issues this raises is whether we have to wait for a Royal Commission in order to heed the call of community expectations?

But just exactly what are community expectations? Is there a single homogeneous community and shared values? Continue reading

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New legislation encourages employers to address historic SG shortfalls

Legal Briefings – By Sarah Yu and Amber Kennedy

The Minister for Revenue and Financial Services has announced a proposed 12 month Superannuation Guarantee (SG) amnesty to incentivise employers to voluntarily address past SG non-compliance

Employers should be proactive in disclosing and rectifying historic SG non-compliance during the proposed 12 month SG amnesty period under the Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018, which was introduced into Parliament on 24 May 2018. The proposed SG amnesty is part of a range of broader superannuation integrity measures announced in the Federal Budget 2018-19. Subject to the legislation passing, the amnesty will retrospectively operate from 24 May 2018 to 23 May 2019 and applies to undeclared SG shortfalls between SG commencement on 1 July 1992 and 31 March 2018.

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Filed under Australia, Culture & Governance, Superannuation, Superannuation Guarantee

ASIC updates its ICO guidance

What this means for you

Initial Coin Offering (ICO) issuers have been placed on notice that from 19 April 2018, the Australian Competition and Consumer Commission (ACCC) has delegated powers to the Australian Securities and Investments Commission (ASIC) to enable ASIC to take action under the Australian Consumer Law (ACL) relating to crypto-assets. See ASIC’s Media Release 18-122MR.

This new power enables ASIC to take action against entities using ICOs to raise funds, for conduct that is misleading and deceptive, including making false or inaccurate statements in white papers.  The new delegated powers are applicable to both crypto ‘currency’ and to crypto ‘tokens’.

Key developments – new delegated power and updated INFO 225

ASIC has released a revised Information Statement 225 (INFO 225).  Revisions to INFO 225 include:

  • introducing ASIC’s new delegated powers, and intention to focus on misleading conduct; and
  • describing the key attributes of certain classes of financial product, and when an ICO may display the characteristics of a regulated financial product.

To clarify some commonly held misperceptions, INFO 225 also confirms that the mere fact that a token is:

  • described as a ‘utility’ token; or
  • accompanied by a statement that the ICO or the token is not a financial product,

does not mean that it is not a financial product.

INFO 255 may need further future updates to explore some more sophisticated considerations, such as whether distributed ledger technology platforms hosting the ICO’s, or the DApp hosts may also be arranging financial products, whether white-paper authors or promoters may be jointly liable for false and misleading statements, how incentive schemes may be governed and whether master nodes may also be ‘arranging’ or have disclosure obligations.

INFO 255 also does not give a precise definition of a ‘crypto-asset’, and whether this is a broad concept (including usage and work tokens), or whether this is limited to the digital tokens sold through an ICO.

Is our current regulation fit for purpose?

Crypto currency is now more widely available in Australia, including in retail outlets such as Australian newsagencies. The industry remains active, even after the first quarter of 2018 ‘crashes’. It appears that crypto is becoming more broadly accepted, or at least understood in Australia.  This does raise questions about the future of crypto in Australia, and elements of our regulatory ecosystem need to adapt at a faster pace.

For example, assume that an ICO issuer obtains an Australian Financial Services Licence (AFSL), and as part of its licensing obligations, is a member of an external dispute resolution scheme (EDR).   EDR schemes provide dispute resolution mechanisms for unresolved disputes with member licensees, and are an essential pillar of consumer protection under the AFSL regime.  If a crypto customer has an unresolved dispute with an AFSL licensee, they are generally entitled to complain to the licensee’s EDR to seek assistance resolving the dispute.

Are our EDR schemes equipped to respond to matters relating to ICOs, particularly in the case of third party fraud or unauthorised intervention? If EDRs are not equipped, the requirement for the ICO issuer to be a member seems redundant, and consumers should be told before acquiring the product that they will have no EDR recourse.

As the AFSL regime provides no separate authorisation category for ICO issuers, existing AFSL holders can potentially issue an ICO if the relevant ICO has the characteristics of the financial products that the AFSL holder is authorised to deal in. But are they appropriately equipped to protect consumers in an ICO?  Are they digitally savvy enough, do they hold adequate capital and does their insurance deal with ICO related risks?  Do we need a new AFSL authorisation category which applies to ICO issuers and promoters, and deals with the risks and protections specifically relevant to ICOs?

Perhaps a low-value exemption or ‘restricted AFSL’ could enable ICO issuers to have a total circulation of up to a “specified amount” to enable them to learn about financial services laws before applying for their full AFSL.

Finally, the retail AFSL licence is focused on consumer and investor protection.  In a particularly complex token arrangement (for example, a multi-token digital hedging arrangement including future options or vesting), the potential complexity of a properly constructed white paper containing a correct and valid economic calculation can baffle the most sophisticated investor who does not hold an honours in advanced computational mathematics.  How useful is a Product Disclosure Document in describing risk to a retail client in a complex ICO?

Regulatory focus is essential

It could be argued that an AFSL is not required if you include in the white paper that “this is not a token of value and must not be sold on an exchange”, or if your initial intent is to design a utility token, as the initial intent is relevant in categorising the nature of the token.

These strategies are not valid exemptions from the AFSL regime.  An issuer or promoter must still consider whether the digital token has the characteristics of a financial product for which a licence may be required. To echo ASIC, a utility token may still be a financial product.

It is clear from ASIC’s new delegated power, updated INFO 225 and roadshows to fintech hubs through Australia that ASIC is beginning to understand and turn its mind to ICOs, and to the conduct of issuers.  Regulatory intervention and focus is critical to the growth of genuine ICOs as potentially innovative and beneficial vehicles.

Get in touch

Contact us for any assistance, including help on what to do next, or to learn more about possible implications for your business.

Tony Coburn

Amy Ciolek
Senior Associate

Nicola Greenberg

Lisa Whiting

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Filed under ASIC Guidance, Australia, Digital Currency, Financial Services Regulation, ICO

Welcome to the HSF Regulatory, Governance, Remediation and Culture Portal

Our Regulatory, Governance, Remediation and Culture team (RGRC) will bring you thoughtful insights, RGRC updates and industry highlights.  We would love for you to interact with us, so feel free to leave a comment, or reach out to us directly.

We welcome you to follow us, subscribe and share us with your colleagues.  Please also get in touch if you have a specific theme or question you would like us to blog about.

– RGRC Admin


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Filed under AML/CTF & Sanctions, Australia, Banking, Credit, Culture & Governance, Financial Products & Advice, Fintech, Life Insurance, Privacy & Open Banking, Regulation & Remediation, Superannuation, Uncategorized