News in (very) brief
Please note the following are very high level summaries, and are neither comprehensive nor a substitute for legal advice. Please feel free to contact us if you would like further detail about any of the below.
Litigation Funder AFSL (due date TBA)
The Australian government has announced new rules for litigation funders operating in Australia – they will be required to hold an Australian Financial Services Licence (AFSL) and to conduct class actions as a managed investment scheme.
Block Legal & Compliance have already provided assistance to litigation funders in the financial services space, and can advise you on the requirements, and help you obtain an AFSL.
ASIC power to cancel dormant AFSLs and ACLs (from February 2020)
It is now enshrined in the Corporations Act (s915B) that ASIC has the (discretionary) power to cancel dormant financial services and credit licences if the licensee does not provide a service covered by the licence authorisations, within 6 months of the licence being granted. Further, the licensee has an obligation to notify ASIC within 15 business days after the end of the 6 months of such. Failure to lodge the requisite notification is a strict liability offence (s912DB(2)).
For AFSLs and ACLs issued prior to 18 February 2020, the 6 month period of dormancy commences on 18 February 2020. The aim of the new obligations, together with the obligation to notify changes in control, is to reduce the commoditisation and warehousing of licences. Use it or lose it, in other words!
Reference checking & Information Sharing Protocol (from July 2020)
ASIC may determine a protocol (Corporations Act s912A(3A)) for sharing information about a current or former financial services licensee (if an individual) or representative with another licensee, if they are to provide personal advice about financial products to retail clients. A similar protocol will apply in relation to a current or former credit licensee (if an individual) or representative with another licensee, if they provide credit assistance in relation to credits contracts secured by mortgages over residential property and be a mortgage broker representative.
The Protocol is expected to contain detail in relation to information to be sought/provided; information that need not be sought/provided; steps a licensee should take to contact referees; methods by which information is to be requested and provided; the appointment of key contact persons; and particular record-keeping requirements such as how long records of compliance must be kept for and how records of compliance should be stored.
The Protocol will restrict sharing of personal information (without consent) and will only apply to recent conduct/information (within the last 5 years). Those who share the information (in good faith) in these circumstances will not be liable for breach of confidence actions.
Breach reporting (from July 2020)
There will be a ‘reportable situation’ where a licensee has breached or is likely to breach a core obligation, or has commenced an investigation into whether a core obligation has been breached, and such breach is significant or where they have engaged in conduct constituting gross negligence or has committed serious fraud.
Core obligations will be set out at Corporations Act s912D(3) to include s912A-B obligations and certain registered scheme obligations (ss601FC, FD & FE). A breach will likely be considered significant if it is punishable on conviction by 3 months+ imprisonment (if a dishonesty offence) or 12 months+ otherwise, or if the breach constitutes a contravention of a civil penalty provision, or if it results (or likely will result) in loss/damage to clients or MIS unitholders. Otherwise, previous criteria for assessing significance still apply ie frequency of similar breaches, impact on ability to provide services, indicative of compliance inadequacies etc.
The reporting obligation will tie into the definition of what a person ‘reasonably knows’ and is based on the definitions of ‘knowledge’ and ‘recklessness’ in the Criminal Code and is intended to capture circumstances where, on the facts available, the licensee either has actual knowledge that a reportable situation has arisen or where they may not have actual knowledge but ought to have knowledge that a reportable situation has arisen.
A report must be lodged in writing with ASIC in the prescribed form, firstly, where there are reasonable grounds to believe a reportable situation has arisen (within 30 days) and then secondly, where an investigation as to whether a core obligation has been breached has commenced (even where such investigation concludes there was no breach) within 10 days of the investigation’s conclusion (unless it was concluded within the same 30 days period and covered in the initial report).
These obligations will also apply where there are reasonable grounds to suspect a reportable situation has arisen in relation to another licensee. Such reporting licensee will be protected from any action (eg defamation) unless they lodge a false report for improper motive eg to undermine a competitor.
Mirror provisions are to be introduced to relevant credit legislation.
Investigation and remediating misconduct (from July 2020)
A licensee must take reasonable steps to notify an affected retail client of a reportable situation where personal advice has been provided to them as a retail client, and there are reasonable grounds for believing there has been gross negligence, a serious fraud or a significant breach of a core obligation AND the affected client has or will likely suffer loss or damage as a result and has a legally enforceable right to potentially recover the loss/damage from the licensee.
Such notice must be given in writing in an approved form, and within 30 days after the licensee reasonably knows of the matter. The licensee must conduct an investigation within 30 days, and quantify the loss/damage, and report back to the client within 10 days of concluding the investigation. The licensee must then take reasonable steps to compensate the affected client for the loss within 30 days of completing the investigation.