ASIC bans Perth advisor for five years
ASIC – 23 February 2018 – The Australian Securities and Investments Commission (ASIC) has banned Perth-based financial adviser Philip Leake from providing financial services for a period of five years. ASIC found that Mr Leake failed to act in his clients’ best interests when providing advice on life insurance. More…

Former Charter Financial Planning adviser permanently banned for dishonestly charging almost $67,000 in fees
ASIC – 22 February 2018 – ASIC has permanently banned Brenton John Poynter of Baulkham Hills, NSW, from providing financial services. Mr Poynter as an authorised representative of Charter Financial Planning Ltd, provided financial advice regarding superannuation products to a number of elderly clients. More…

“Onerous” SG non-compliance penalties hurt small businesses
MEDIA – 22 February 2018 – The Institute for Public Accountants has slammed penalties for super guarantee (SG) non-compliance as “draconian,” saying that they could be very damaging to struggling small businesses and warning that more red tape could be coming. More…

New Payments Platform Arrives
FSC – 22 February 2018 – The arrival of the New Payments Platform (NPP) will create ample opportunity for FSC members to create new products and services, be more efficient and realise cost savings. The NPP is a significant upgrade to the nation’s payments infrastructure which shortens the processing of transactions from two or three days to just a matter of seconds. More…

Director excluded from financial services industry for five years, pay $400,000 to financial literacy fund
ASIC – 16 February 2018 – Between May 2013 and December 2016 Mr Orth developed and caused Real Wealth to implement a business model under which it provided financial services to more than 750 clients. Real Wealth did not take into account the personal circumstances of clients or make reasonable inquiries regarding the clients’ objectives, financial situation or needs. More…

Strengthening APRA’s crisis management powers
TREASURY – 14 February 2018 – The Turnbull Government is ensuring Australia’s financial system remains unquestionably strong – by strengthening the APRA’s crisis management powers, with the Senate passing of the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017. More…

Australian Financial Complaints Authority – legislation passed
SCT – 16 February 2018 – This week, the Bill to establish the Australian Financial Complaints Authority (AFCA) passed through parliament. AFCA will be a new one-stop-shop dispute resolution scheme that will replace the Superannuation Complaints Tribunal (SCT), the Financial Ombudsman Service and the Credit and Investments Ombudsman. SCT will continue to operate for a time after AFCA’s introduction to resolve outstanding complaints. More…

ASIC welcomes establishment of the Australian Financial Complaints Authority
ASIC – 14 February 2018 – ASIC welcomes the passage through Parliament of the Bill to establish the Australian Financial Complaints Authority (AFCA). In the transition to the commencement of AFCA, ASIC will retain direct oversight of the two ASIC-approved schemes – FOS and CIO – which will continue to provide high levels of service to consumers and firms. More…

Superannuation benefits should be available to assist victims of domestic violence
ASFA – 14 February 2018 – In a submission to a Treasury consultation on the early release of super, ASFA supported claims for the early release of super on compassionate grounds being extended to include domestic violence victims and suggested specific eligibility criteria be prescribed. More…

Melbourne financial services business and former director to pay $7.8M for breaches of best interest obligations and consumer protection laws
ASIC – 08 February 2018 – The Federal Court has found that three Melbourne-based companies engaged in numerous contraventions of financial services and consumer protection laws and ordered them to pay penalties totalling $7,150,000. More…

In practice and courts

Banking Executive Accountability Regime (BEAR) commencement dates
Banks will be required to register their senior executives and directors (accountable persons) with APRA and provide greater clarity regarding their responsibilities. For large authorised deposit-taking institutions (ADIs), the BEAR will commence on 1 July 2018. For small and medium ADIs, the regime will commence from 1 July 2019, allowing them more time to comply. More…

Information on new professional standards for financial advisers now available on ASIC website
ASIC has created a new section on its website to help financial advisers navigate the incoming professional standards requirements. The new requirements are aimed at lifting the education, training and ethical standards in the financial advice sector, and are outlined here. This information can be found on the ASIC website at Professional standards for financial advisers- reforms. (13 February 2018). More…

Competition in the Australian financial system: draft report
Productivity Commission – This inquiry focusses on competition in Australia’s financial system as a means to improve consumer outcomes, enhance the productivity and international competitiveness of the financial system and the broader economy, and support ongoing financial system innovation — without undermining financial stability objectives (February 2018). More…

FOS Circulars 2018
Issue 32 – February 2018

AFSA: Regional personal insolvency statistics – December quarter 2017
There were 7,687 debtors who entered a new personal insolvency in the December quarter 2017 in Australia. Of these, 4,785 debtors or 62.2% were located in greater capital cities (14 February 2018). More…

ASFA Submissions
Submission to The Treasury – Re: Treasury Laws Amendment (Taxation and Superannuation Guarantee Integrity Measures) Bill 2018. More…

AIST Submissions

Expert Review of Superannuation Fees and Costs
20 February 2018 -. key concerns with the Disclosure Regime stem from members being placed in a position of not being able to compare products, the inability at system level of comparing fees, costs and returns, and the legislative onus to both collect and report not including investment managers.

Draft legislation – SG integrity measures
16 February 2018 – AIST supports the measures contained in this exposure draft.

Means testing of retirement income streams
16 February 2018 – In this submission, AIST offers a guarded support for the proposed means test treatment outlined in the Position Paper.

IFAC: Exposure Draft 64, Leases
Released: January 31, 2018; Due: 30 June 2018. More…

Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
The Commissioner, the Honourable Kenneth Madison Hayne AC QC, is authorised to submit an interim report no later than 30 September 2018, and will provide a final report by 1 February 2019. The next round of public hearings will commence Tuesday, 13 March 2018. More information is available on the Transcripts and hearings page. Practice Guidelines are available on the Practice Guidelines page. The Royal Commission’s initial public hearing was held on 12 February 2018. A video recording and transcript of the initial hearing is available.

Current Inquiries – Economics Legislation Committee

Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 [Provisions]

Status: Reporting Date: 09 February 2018.
Consumer protection in the banking, insurance and financial sector
Status: Reporting Date: 28 March 2018.

Consultation on protecting your superannuation entitlements
The Government has released draft legislation to protect workers’ superannuation entitlements and modernise the enforcement of the superannuation guarantee. The draft legislation and supporting materials are available on the Treasury website, and interested stakeholders are encouraged to provide their views.

INFORMATION AND UPDATE THANKS TO  

A key difference between the ACL and AFSL regime has been that credit licensees have no obligation to report breaches.  The absence of breach reporting was an intentional feature of the ACL regime. During the process of drafting the legislation an ASIC representative stated that ASIC did not want to receive breach reports because it must investigate reports and it didn’t have the resources.

ACL holders and in particular lenders often identify minor breaches and rarely, if ever, report these minor breaches. On the other hand, responsible credit licensees will report any material breach and in particular any systemic breach in order to demonstrate compliance culture and to avoid ASIC discovering those breaches during an audit. Licensees should also keep a breach register in which all breaches are recorded together with details of the rectification steps taken and of any consumer compensation paid.

All that may be about to change because Treasury has released a consultation paper on breach reporting by financial services and credit licensees. Included in the recommendations made in Position and Consultation Paper 1 Self-reporting of contraventions by financial services and credit licensees is a proposal that credit licensees be subject to mandatory breach reporting to ASIC.

The paper recognises the current practice of ACL holders reporting significant breaches.  In addition, ASIC receives information about misconduct from ACL holder competitors and EDR schemes. However, in order to ensure that ASIC is notified of breaches in a timely manner and there is consistency among the industry, it is proposed that ACL holders be subject to the same, or a similar regime as AFSL holders.

Currently, AFSL holders are obliged to report themselves to ASIC if they contravene, or are likely to contravene in the future one or more of their general obligations and the contravention is significant.  However the paper recognises that the current AFSL reporting regime has a number of deficiencies including that the test for whether a breach should be reported is a subjective one leading to inconsistencies in industry about what is reported and what is considered ‘significant’. A large organisation will have a different interpretation of ‘significant’ to a smaller organisation. Further currently, only proven breaches need to be reported, rather than merely suspected breaches.

The report proposes that the current test for reporting be changed to a more objective test, namely that actual or suspected breaches (or potential breaches) must be reported if a reasonable person would consider the breach to be significant. This change is an attempt to level the playing field so that the significance test relates to what a reasonable person would believe to be significant as opposed to what is considered significant to the licensee which may vary depending on the size and complexity of the business.

Due to the large number of small, single person operator’s holding an ACL, if this change is implemented, the compliance burden of mandatory reporting could be quite burdensome. As such, any new regulation seeking to mandate breach reporting would need to ensure that it did not operate unfairly for smaller players. Further, while some breaches of the National Consumer Credit Protection Act will be obvious (for example, dealing with an unlicensed entity, charging an undisclosed fee etc.) some breaches, particularly in the area of responsible lending, will be less clear due to the scalable nature of the responsible lending obligations. Indeed what may be a responsible lending breach with respect to one consumer, will not be a breach for another consumer.

Careful consideration need to be given to the wording of the reporting requirement for ACL holders so that licensees are not having to report constantly and for things that may not even be breaches as this would waste the time and resources of both the ACL holder and ASIC. The change may, however, encourage businesses to enhance their compliance culture and have a collaborative with ASIC when dealing with issues impacting consumers.

Article courtesy of Dentons and Elise Ivory.

ASIC today released two consultation papers proposing guidance for public companies and intermediaries (i.e. crowd funding platform operators) to assist them in using the new crowd-sourced funding (CSF) regime commencing on 29 September 2017.

Under the CSF regime, eligible public companies will be able to make offers of ordinary shares to a large number of investors, via an online platform of an Australian financial services licensed intermediary.

ASIC Commissioner John Price said, ‘CSF has the potential to be a new source of funding for small to medium-sized businesses, including start-up and early-stage companies.’

‘ASIC is keen to assist public companies and crowd funding platform operators to understand and comply with their obligations under the new regime, which can help sustain investor confidence and support for CSF.’

The proposals in Consultation Paper 288 Crowd-sourced funding: Guide for public companies (CP 288) aim to assist companies seeking to raise funds through CSF to navigate the new regime and to understand and comply with their obligations, particularly given many of these companies will not have experience in making public offers of their shares.

The proposals in Consultation Paper 289 Crowd-sourced funding: Guide for intermediaries (CP 289) aim to assist intermediaries seeking to provide a crowd-funding service, particularly given this is a new type of financial service and there are unique gatekeeper obligations for intermediaries operating platforms for CSF offers.

ASIC invites submissions on CP 288 and CP 289, which are due by 3 August 2017.

Download

• CP 288 (including draft regulatory guide, draft template CSF offer document and ASIC instruments)
• CP 289 (including draft regulatory guide and ASIC instruments)

Background

The Corporations Amendment (Crowd-sourced Funding) Act 2017 (the Act)provides a legislative framework for crowd-sourced funding. The CSF regime reduces the regulatory requirements for public fundraising while maintaining appropriate investor protection measures. Intermediaries providing CSF services (e.g. operating a crowd funding platform) must hold an Australian financial services (AFS) licence.

The Act received Royal Assent on 28 March 2017 and takes effect from 29 September 2017.

The main features of the CSF regime under the Act are:

• reduced disclosure in the form of an offer document which contains prescribed minimum information and is to be published on a licensed intermediary’s platform;
• the gatekeeper role of the intermediary, including obligations to perform checks on companies making offers, its directors, and the offer document;
• retail investor protections including an investment cap of $10,000 per company in any 12 month period and a cooling-off period to allow withdrawal from offers; and
• temporary concessions for newly registered or converted public companies, for up to five years, from certain reporting, audit and corporate governance obligations.

The CSF regime forms part of the Government’s FinTech Priorities, released in March 2016, which identify the potential of CSF to provide new and innovative businesses with access to capital to develop their products or services and contribute to productivity growth.

See ASIC webpage on crowd-sourced funding for further information, including information on applications:

• by intermediaries for an AFS licence with an authorisation to provide CSF services; and
• to register new public companies or convert existing proprietary companies to public companies, to be eligible to raise funds using CSF and to access the corporate governance concessions

ASIC has clarified its position on the use of restricted terms relating to the independence of financial advisers after seeking external legal advice on whether phrases such as ‘independently owned’ are restricted terms under s923A of the Corporations Act (the Act).

Section 923A provides that financial service providers can only use certain restricted words and expressions if they do not receive commissions, volume-based payments, or other gifts or benefits, and operate without any conflicts of interest. While words such as ‘independent’, ‘impartial’, and ‘unbiased’ are specified as restricted words in s923A, there was some uncertainty about whether words such as ‘independently owned’ were also restricted.

Following external legal advice, our position is that words such as ‘independently owned’, ‘non-aligned’ and ‘non-institutionally owned’, and other similar words or expressions, can be used only if a financial adviser satisfies the conditions set out in s923A. This means that if a financial adviser does not receive any commissions or volume-based payments, or other gifts or benefits and has no conflicts of interest or influence from any product issuer, then they can describe themselves as being ‘independently owned’. However, if the financial adviser does receive commissions or operates with conflicts of interest, then they will not be permitted to use the term ‘independently owned’ or other like words or expressions.

Deputy Chairman, Peter Kell said, ‘The independence of financial advisers is an important issue for consumers and investors, and may sway their decisions about their investments or their choice of adviser. Consumers must not be misled into believing that an adviser is independent and free from influence when that is not the case. This is why the Corporations Act puts strong conditions around the use of  ‘independent’ and similar word and phrases’.

ASIC acknowledges that there has been uncertainty in the financial advice industry about whether terms such as ‘independently owned’ and ‘non-aligned’ are restricted terms under s923A. In light of that uncertainty, we will provide a facilitative compliance period of six months so that advice firms that do not satisfy the conditions in s923A can change websites and documents to remove terms such as ‘independently owned’, ‘non-aligned’ or ‘non-institutionally owned’.

The facilitative compliance period will not extend to contraventions of s923A where the specified restricted terms ‘independent’, ‘impartial’, and ‘unbiased’ are used. ASIC considers that there has been no uncertainty about how s923A applies to these terms and ASIC will continue to take action against financial service providers for using these terms in breach of s923A.

We have notified key interested stakeholders about our position on s923A by letter. We will also update Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175) to give further guidance on how to comply with s923A.

The attachment to this media release also includes a brief ‘Q and A’ for industry participants about our clarification of the provision.

Background

Section 923A prohibits a person from using certain restricted words and expressions in relation to a financial services business or in the provision of a financial service unless:

• the person (including anyone providing a financial service on their behalf or anyone on whose behalf they are providing a financial service) does not receive:
• commissions (apart from commissions that are rebated in full);
• forms of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product; or
• other gifts or benefits from product issuers which may reasonably be expected to influence that person;
• the person operates free from direct or indirect restrictions relating to the financial products in respect of which they provide financial services; and
• the person is free from conflicts of interest that might arise from any relationships with product issuers and which might reasonably be expected to influence the person.

Section 923A(5)(a) specifies that the words ‘independent’, ‘impartial’, and ‘unbiased’, or any other words “of like import” are restricted words for the purposes of s923A. Use of those words as part of another word or expression is also restricted: s923A(5)(b).

Attachment to 17-206MR: ASIC’s position on s923A of the Corporations Act

1. Can a financial service provider use terms such as ‘independently owned’, ‘non-aligned’ and ‘non-institutionally owned’ if it does not satisfy the conditions in s923A of the Act?

A financial service provider cannot use terms such as ‘independently owned’, ‘non-aligned’, and ‘non-institutionally owned’ if it does not satisfy the conditions in s923A (e.g. the financial service provider receives commissions from the issuer of a financial product).

We recognise that these terms are often used to convey the ownership and structure of the financial service provider, which is not intended to assert any independence or absence of conflict or influence from a product issuer. However, the use of these terms could also imply that the financial service provider has an independent decision-making structure, free from conflicts of interest and influence from a product issuer. It is still open for these terms to mislead or confuse a consumer as to the nature of the financial service provider’s connection to the financial product issuer. In this way, these terms convey a meaning that is of ‘like import’ to the restricted terms in s923A(5)(a)(i), and so are restricted under s923A.

If a financial service provider that does not satisfy the conditions in s923A wants to indicate its association with a particular industry group that uses a restricted term, the financial service provider must use very clear statements to qualify this association. The qualification should convey information both as to the ownership structure of the financial service provider and also about the financial service provider’s relationship with product issuers which may give rise to a conflict of interest (e.g. the financial service provider must specify that they receive commissions) so a consumer would be in no doubt as to the relationship between the financial service provider and financial product issuers.

2. Can a financial service provider who receives asset-based fees call themselves ‘independent’?

Financial service providers who receive asset-based fees are not prevented from using restricted terms such as ‘independent’ merely because of their receipt of asset-based fees.

One of the conditions that must be met if a financial service provider wishes to use a restricted term under s923A is that the financial service provider does not receive forms of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product: s923A(2)(a)(ii). There has been some uncertainty about whether asset-based fees fall into this category of remuneration and would prevent a financial adviser from using a restricted term.

Our position is that asset-based fees are not considered forms of remuneration calculated on the basis of the volume of business placed by the person with the issuer of a financial product. Asset-based fees are defined in s964F of the Act as a fee for providing financial product advice to a person as a retail client to the extent that it is dependent upon the amount of funds used or to be used to acquire financial products by or on behalf of that person. In contrast, s923A(2)(a)(ii) applies where a person does not receive any form of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product.

Section 923A(2)(a)(ii) and s964F deal with two different matters. Section 923A(2)(ii) is concerned with fee arrangements between a financial service provider and an issuer of a financial product, while s964F concerns direct fee arrangements between the financial service provider and the client. Accordingly, an asset-based fee is not captured by s923A.

3. Does the use of an Approved Product List (APL) constitute a direct or indirect restriction under s923A(2)(d) of the Act and therefore prevent a financial service provider calling themselves ‘independent’?

APLs are commonly used by licensees to provide a list of financial products for their representatives to consider when providing advice to their clients. We recognise that APLs are used as a risk management tool to assist a licensee in meeting the legal obligations when they or their representatives are providing financial product advice. However, under s923A(2)(d) of the Act, imposing an APL on a financial service provider could constitute a direct or indirect restriction, thereby prohibiting  a restricted term under s923A from being used. The very nature of an APL, which restricts a representative from recommending products not on the APL, is restrictive.

Whether the use of an APL constitutes a direct or indirect restriction for the purposes of s923A(2)(d) will depend on the operation and breadth of the APL. Where the APL is used as an open list of products or where there is an easy process to recommend a product that is not on the APL the restriction is less likely to prevent a financial service provider from calling themselves independent (assuming all the other conditions in s923A are met). Where the off-APL process is not easy to access, it is more likely to be considered a restriction, and as such, the financial service provider would not be permitted to use a restricted term

Westpac Banking Corporation (Westpac) has paid a penalty of $127,250 to comply with an infringement notice (Infringement Notice) given to it by ASIC.

The infringement notice was issued in response to an alleged breach of the ASIC Derivative Transactions (Reporting) Rules 2013 (ASIC Rules) during the period from 2 October 2013 to 30 April 2015.

This is the first notice issued and penalty paid under the ASIC Rules, which require counterparties to report derivative transaction and position information to derivative trade repositories.

During the relevant period, Westpac failed to report information about 112,556 Reportable Transactions as required by the ASIC Rules. The Infringement Notice identifies 398 alleged contraventions of subrule 2.1.1(1), being one alleged contravention for each Business Day during the relevant period.

Compliance with the Infringement Notice is not an admission of guilt or liability and Westpac is not taken to have contravened subrule 2.1.1(1).

The conduct which is the subject of the notice is summarised below.

Background

ASIC issued the infringement notice as it had reasonable grounds to believe that Westpac contravened subrule 2.1.1(1) of the of the ASIC Rules, which  required Westpac to report information about each of its Reportable Transactions that was the entry into an OTC Derivative to a Licensed Repository or a Prescribed Repository, generally by no later than the end of the next Business Day after entry into the OTC Derivative.

Westpac designed its derivative transaction reporting systems with the understanding that Westpac’s reporting system captured all relevant transactions required to be reported under the ASIC Rules.

That understanding was erroneous as certain transactions (FMS Transactions) that were Reportable Transactions and were entered into Westpac’s deal capture system flowed through to an accounting and settlement system known as “FMS” and did not flow through to Westpac’s reporting system to be extracted for reporting purposes.

Westpac became aware of this flaw in July 2014, though the team did not know at that time the number of FMS Transactions that had not been reported due to the reporting system flaw.

At the time Westpac determined that it would not have been reasonable to divert significant project resources from management of ongoing development and implementation of new reporting processes and fields to further investigate what it expected to be a potentially small number of Reportable Transactions.

In the months leading up to 1 October 2014, Westpac undertook a significant program of work to address reporting consent requirements for transaction reporting under the ASIC Rules. Westpac prioritised its resources on external counterparties and system building to manage these requirements. Further analysis and verification of the FMS Transactions remained an outstanding task to be completed at a later date.

By March 2015, an investigation by Westpac into the transaction information for FMS Transactions showed that there was potentially a material population of underlying foreign exchange derivative transactions transacted by the business and retail channels that were not feeding into Westpac’s core trade reporting processes.

Westpac reported the Unreported Transactions to DTCC between 1 January 2016 and 22 January 2016. However those transactions were submitted to DTCC by Westpac with the counterparty buyer/seller information inadvertently reversed.

ASIC’s significant court win demonstrates that irresponsible advice will not be tolerated.

In brief: Australian Financial Services (AFS) licensees and their representatives beware: ASIC’s significant court win demonstrates that irresponsible advice will not be tolerated.

What you need to know

• An AFS licensee providing personal advice to retail clients is responsible for the actions of its representatives and authorised representatives.
• An AFS licensee has to ensure its representatives comply with their obligations to act in the best interests of the clients and only provide advice that is appropriate.
• Representatives of an AFS licensee also have to ensure that they act in the best interests of the clients and provide advice that is appropriate.
• An AFS licensee has to put in place sufficient and up-to-date policies relating to legal and regulatory compliance and risk management.
• An AFS licensee has to ensure that its representatives have adequate training on legal and regulatory obligations.

Background

Under the FOFA reforms to the Corporations Act 2001 (Cth) (Corporations Act) introduced in 2013:

• section 961B states that a provider of advice to clients must act in the best interest of the client; and
• section 961G states that a provider must only provide advice that is appropriate to the client.

These obligations apply to both AFS licensees and their representatives.

The decision

NSG Services Pty Ltd (NSG) holds an AFS licence authorising the giving of financial advice to retail clients. On eight different occasions between July 2013 and August 2015, NSG’s representatives sold insurance and/or advised clients to rollover superannuation accounts that committed the clients to costly, unsuitable and unnecessary financial arrangements.

The Federal Court found that NSG’s representatives breached sections 961B and 961G as they failed to take reasonable steps to ensure that they provided advice that complied with the best interest obligations, and provided advice that was inappropriate to their clients.

Due to these breaches, NSG was also found to be in breach of section 961L of the Corporations Act, which states that a licensee must take reasonable steps to ensure that its representatives comply with sections 961B and 961G of the Corporations Act.

The Federal Court declared that NSG had: inadequate training on legal and regulatory obligations; lack of supervision of its representatives; failed to identify the knowledge deficiencies of its representatives; insufficient compliance policies; and a “commission only” remuneration model for it representatives.

ASIC has sought orders that NSG pay pecuniary penalties, which have yet to be determined by the Court. ASIC deputy chairman Peter Kell said “This finding, the first of its kind, provides guidance to the industry about what is required of licensees to ensure representatives comply with their obligations to act in the best interests of clients and provide advice that is appropriate.”

Conclusion

This case illustrates the responsibilities on AFS licensees to ensure their representatives comply with legal and regulatory obligations. It is critical for AFS licensees to put in place compliance policies and procedures and to ensure that their representatives are properly trained and regularly monitored.

Courtesy of Magwicks Lawyers.

Good afternoon colleagues,

I’m sure you are all aware that it’s only 10 Days to Xmas and as such, it’s time to plan for compliance services over the holiday period.

All Compliance National services will continue over the Xmas Holiday period as normal with the following exceptions;

1. Between 5pm on Wednesday the 21st of December 2016 to 7am Monday the 9^th of January 2017 (@12 working days), the Express and Marketing Review Register’s, the Testimonial Register and the Express Remitter Investigation Register will all be closed. This will allow our dedicated operational staff to have a break.
2. Compliance Advice will not be available between 31^st of December 2016 to and including the 4^th of January 2017. This will allow our qualified staff to have a short break.

Please note that our surveillance systems, monitoring and reporting systems will remain open and functional and monitored during this period (with exception 1 above).

Our compliance management systems don’t take a break so please ensure that any changes to your websites, and any marketing material is submitted well before the dates indicated above.

Please don’t hesitate to contact us for assistance over the above period (with exception 2 above) should you need compliance advice. Senior staff will be on call to assist you when needed.

Compliance National takes this opportunity to thank you all for your custom and cooperation during 2016 and wish you all a Merry Xmas and a Safe and Prosperous New Year.

The law on pre-prospectus advertising in Australia is very broad and restrictive, even potentially when it comes to marketing to sophisticated and professional investors. What does the market want? Our assessment is that if your pre-IPO information is not misleading or deceptive and is only accessible by people whom the law deems sophisticated enough to make up their own minds – you should be able to go for it. It probably also grudgingly accepts the current reality that if the audience is retail – issuers need to stay away until the prospectus is lodged with ASIC. But there is also an argument that, if it is impossible for retail to apply for securities without first getting a prospectus (the law is clear on this one), isn’t there room for the dissemination of information, and journalist discussion in the media, about pending IPOs?

Helpfully, ASIC have again taken the initiative of producing guidance, this time in the form of a report which discusses its views on marketing IPOs. We think there is a way to go in this area (and frankly the initial focus of some commentators on social media is missing the main point), but ASIC has done its homework and is well positioned to engage in the debate ahead.

And that debate is this: if (and it’s an important if) retail can’t subscribe without first having being provided with a prospectus, why shouldn’t issuers be entitled to market their companies as they see fit, and the media comment on them, as long as issuers are not being misleading or deceptive? And on a related point – surely issuers should be able to interact with existing shareholders about their potential sale decisions, and with employees about the progress of IPO preparations and potential implications of an IPO for them (in each case without providing financial advice encouraging purchasing stock in the IPO) without troubling ASIC for permission to do so?

We’ll keep you updated on where this goes, but for now, here is an update on ASIC’s latest report on marketing practices in IPOs released on 19 September 2016.

The review

We said ASIC has done its homework. Along with a general review of marketing practices, ASIC conducted a targeted two-stage evaluation. In the first stage of its review, ASIC examined the online and social media marketing of 23 prospectuses lodged with ASIC over a six-week period. In the second stage, ASIC selected seven of these for further inquiry, including contacting the advisers and reviewing marketing documents.

ASIC’s main areas of concern

The report cautions advisers and issuers to market IPOs within legal limits, to avoid misleading investors. ASIC Commissioner, John Price, has commented that “we are seeing new interactive methods of communication and marketing used … while we embrace such innovation, we also want to remind [advisory] firms and issuers to ensure that their marketing practices comply with the advertising and publicity restrictions in the Corporations Act”.

ASIC acknowledges that some good practices have been adopted, however REP 494 highlights the following main areas of concern:

• oversight weaknesses;
• failure to monitor and inadequate controls on access to information; and
• investors receiving misleading or incomplete information.

The key takeaways for advisers and issuers

Improve oversight of communications with investors

REP 494 stresses the need to represent the investment opportunity in a fair and balanced manner, and emphasises that a prospectus must be the primary source of information about an IPO for retail investors. ASIC’s recommendations include:

• Use standardised scripts and keep records of telephone calls;
• Do not include financial forecasts in communications without also including a discussion of the underlying assumptions or risks involved;
• Be careful not to misstate ASIC’s role in an IPO;
• Ensure that communications are only based on factors connected to the merits of the individual IPO – in particular, avoid the “risky practices” of messaging seeking investors to assist with meeting spread requirements, or comparing an IPO to past IPOs that are not in fact directly comparable; and
• Avoid unbalanced messaging in emails, which risks creating a misleading impression about the investment opportunity.

Ensure consistency in messaging across all marketing channels used

REP 494 stresses the need to ensure that marketing is accurate and consistent with the prospectus, regardless of the medium employed. It also emphasises the need to update marketing materials according to any changes made throughout the IPO process, and remain conscious of the prohibition on providing information to the media before the prospectus is lodged.

Use social media cautiously

Traditional marketing methods, such as telephone calls, emails, presentations and publicly available websites, remain the primary channels used to market IPOs. However, REP 494 notes increasing use of more innovative and creative channels like social media, especially by small- to medium-sized advisers. ASIC reminds the market that social media use should be closely monitored.

Improve controls on access to information

Marketing to retail investors differs considerably from marketing to institutional investors. Usually, extra material is made available to institutional investors, namely pathfinder prospectuses, offer summaries, roadshows including management presentations, and occasionally “investor education” research. REP 494 emphasises the need to carefully restrict access to roadshows and pathfinder prospectuses to AFS licensees and institutional investors respectively. ASIC recommended that advisers educate an issuer’s employees regarding these limits and the surrounding legal framework, and more strictly control the dissemination of these materials.

Further reviews by ASIC are likely

ASIC has indicated that it will continue to monitor the marketing of IPOs, while conducting further examination into investor behaviour and decision-making, to ensure that marketing practices do not mislead investors or breach publicity and advertising prohibitions and restrictions.

ASIC acknowledges that recommended compliance processes and the strict wording currently required to be included in advertising materials may not be compatible with modern marketing techniques such as social media. This suggests a potential for reform in this area; however, it remains to be seen how broad these reforms may be. For now, compliance with the current law, regardless of incompatibilities with newer marketing channels, is, of course, necessary.

Where to from here?

REP 494 confirms our view that while marketing is a critical component of any IPO process and presents a great opportunity to inform and attract investors, it needs to be carefully planned and reviewed by experienced advisers, to ensure that it paints a fair and balanced picture of the IPO.

ASIC’s report is thorough, and there is much to discuss. But one thing that would help is an understanding of what are the really sensitive issues that will be policed in the future, and what standards issuers will be held to.

Article Courtesy of Clayton Utz Lawyers.

The guiding principles for businesses using online reviews as part of their marketing toolkit are openness, consistency and honesty.

The ACCC has had a strong focus on consumer law compliance in the online marketplace over recent years. The instant nature and relative informality of activity online has tended to result in a more relaxed attitude towards compliance with the law, including the Australian Consumer Law (ACL). Of course, this attitude is misplaced – the ACL applies to online transactions and communications in exactly the same way as it applies to more traditional exchanges. There is, however, some useful guidance for anyone using online reviews as part of their marketing toolkit.

ACCC issues guidelines in 2013

One area of focus in the ACCC’s monitoring of the online environment has been product reviews and testimonials.

In 2013, the ACCC published guidelines for businesses which publish reviews online. While such guidelines do not necessarily represent the law as it stands, they are invaluable as they indicate the ACCC’s views on best practice, and also when certain conduct may attract unwanted attention from the regulator.

For example, the guidelines recommended that businesses should only offer incentives for posting reviews online if:

• incentives are offered regardless of whether the consumer is likely to post a positive or negative review;
• reviews are treated equally, regardless of whether they are complimentary or critical;
• the reviewer is expressly told that the incentive is available whether the review is positive or negative; and
• the incentive is prominently disclosed to users.

Earlier this year, the ACCC pursued True Value Solar, which had been offering customers a free solar panel service (valued at $199) if they placed a review on one of the leading online review platforms, www.productreview.com.au. The offer was only made to customers who had indicated that they were happy with True Value Solar’s service (who could therefore reasonably be expected to post a positive review). The customers who submitted reviews did not indicate that an incentive had been provided. As a result of the investigation, True Value Solar discontinued its incentive program.

New ICPEN guidelines

Last month, the ACCC announced the development of new guidelines by the International Consumer Protection and Enforcement Network (ICPEN), an informal collaboration between consumer law regulators around the world, including the ACCC. Recognising the growing reliance consumers place on online reviews and testimonials, for example when booking travel and accommodation, ICPEN has published separate sets of guidelines for review administrators, digital influencers, and traders and marketing professionals.

A review administrator is someone who collates and publishes product reviews. This includes suppliers of products which collect and publish reviews of their own products, as well as the publishers of aggregated review platforms (eg. Trip Advisor, CNET, DP Review, Epinions and Product Review). The guiding principles for review administrators are:

• be equal and fair in the collection of reviews;
• be alert and proactive in the moderation of reviews; and
• be transparent in the publication of reviews.

Digital influencers are essentially people who blog, vlog or tweet. The guiding principles for digital influencers are:

• disclose the payment of any incentive;
• disclose other relevant commercial relationships; and
• provide genuinely held views.

For the suppliers of products generally (and the marketers that assist them), the guiding principles are:

• do not prevent consumers from seeing the whole picture of genuine, relevant and lawful reviews;
• do not write, commission or publish fake reviews or testimonials;
• disclose the payment of any incentive; and
• disclose other relevant commercial relationships.

The guidelines contain a number of more granular recommendations. If, for example, you are a marketer or digital influencer, the guidelines say that you should protect yourself by refusing to deal with businesses that sail too close to the wind.

One of the more difficult issues which businesses have confronted in this area has been how to moderate reviews. In this regard, the guidelines say that review administrators should:

• maintain appropriate procedures for moderating reviews;
• remove, or tag as suspicious, reviews where the content is reasonably suspected of being fake, offensive or defamatory (the guidelines include some indicia of fake reviews);
• give businesses whose products are reviewed the opportunity to challenge user reviews in the same place where the reviews are published;
• investigate complaints about reviews but only remove them if there appears to be a proper foundation for the complaint;
• ·not apply disproportionately more rigorous processes in moderating negative reviews than positive reviews; and
• implement procedures to stop negatively reviewed businesses from “phoenixing” under a different name.

So watch out!

There is a lot of overlap between the ACCC’s 2013 guidelines and the new ICPEN guidelines. Much of it is common sense, though both sets of guidelines are certainly essential reading for any business contemplating collecting or publishing reviews of products online. As can be seen, the guiding principles are really about openness, consistency and honesty.

Or, in other words, don’t mislead consumers. The ACCC is watching.

Article thanks to Clayton Utz

The Turnbull government is setting up a new body to lift the professional standards of financial advisers – an industry hit by numerous scandals in recent years.

Minister for Financial Services Kelly O’Dwyer says all new advisers will need to sit an exam, complete a professional year and comply with a code of ethics from January 1 2019 after passing a relevant degree.

Existing advisers will have a five-year transitional period to reach degree-equivalent status.

“It is in everyone’s interest that Australians are receiving high-quality advice from high-quality advisers,” Ms O’Dwyer told the Financial Services Council Leaders’ Summit 2016 in Melbourne on Thursday.

She says the new standard-setting body will develop professional and education requirements for new and existing advisers, including an exam and a code of ethics.

Existing advisers will have from January 1 2019 to January 1 2021 to pass the exam.

It is envisaged the standards body will have the power to exempt advisers on a case-by-case basis.

“However, this exemption from the exam will be reserved for advisers who are exceptionally qualified and who have many years of experience,” Ms O’Dwyer said.

But all advisers will be required to comply with the code of ethics.

The government is also enhancing the financial adviser register to improve accountability and transparency, which will help consumers make informed decisions about choosing a financial adviser.

“I am confident that this new framework will improve the quality and integrity of financial advice,” Ms O’Dwyer said.

Read more at http://www.9news.com.au/national/2016/07/21/10/23/financial-advisers-face-new-tests-o-dwyer#uOIIScCLdJaxDH1i.99