andrea beatty - k&l gates - annual regulatory update of australian credit law

© Copyright 2014 by K&L Gates. All rights reserved.

Andrea Beatty Partner, K&L Gates 1 October 2014

Regulatory update – what's next and the year in review

The 24th Annual Credit Law Conference

23259329v3

OUTLINE

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Part A – Australia

Part B – USA

Part C – Europe/UK

2014 AFL Grand Final – Hawks v. Sydney Swans Hawthorn 2014 premiers…again!


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HAWKS SUPPORTER


PART A - AUSTRALIA

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I Reform timeline

II Regulatory landscape

III NCCP progress report

IV ASIC action

V Privacy hot spots

VI Payments activity

VII AML update

VIII What’s on the horizon?


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graphic: courtesy of imgarcade.com/1/john-‐deere-‐tractors-‐stuck-‐in-‐the-‐mud/

ASIC TRACTION & POLICYMAKERS – SPINNING WHEELS???


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5TH EDITION – “PINK BOOK”

Edition Publication Year

Total Pages

1st 1997 399

2nd 2000 460

3rd 2006 608

4th* 2011 907

5th 2014 1188

Growth of financial services regula4on


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THE “PINK BOOK” RESEARCH ASSISTANT


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I. REFORM TIMELINE

Jan 2014

1.1.14 EDR changes – if small business loan >$2M & proceedings commenced – no EDR

Feb

1.2.14 CBP changes

May July

K&L Gates – Financial Services Masterclass (ACL & AFSL) 12.11.14 and 26.11.14. Sydney & Melbourne.

2015 §  Competition law

review §  Unfair contract

terms for small business?

§  Commercial credit providers join privacy EDR scheme?

§  FOFA changes? §  New payments

platform? §  Financial sales

regulated? §  Credit repair?

? Phase 2 Credit

Reforms

August Oct

12.3.14 Privacy changes commenced

15.7.14 Financial System Inquiry – release of interim report

ARCA to lodge PDRE industry code to ACCC

Mar 2015

11.14

Financial System Inquiry – expected release of final report

Nov

8.14 Chip & PIN – card activation

2.9.14 Federal Court judgment - The Cash Store case

28.4.14 Australia & US enter into IGA for FATCA compliance

08.14 Australian Payments Council established


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AFR – 25 September 2014 © Copyright 2014 by K&L Gates. All rights reserved.

1.  Financial System Inquiry

2.  ASIC Senate Inquiry

3.  FATCA update

4.  Industry codes of practice

5.  Technology & regulation

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II. REGULATORY LANDSCAPE


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II. REGULATORY LANDSCAPE CONT.

1. FINANCIAL SYSTEM INQUIRY (FSI)

FSI focus

Stability

Consumer outcomes

Technology

Regulatory architecture

CompePPon

Funding

SuperannuaPon & rePrement income

InternaPonal integraPon


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2. ASIC SENATE INQUIRY

Final report on ASIC’S

performance -‐ 26 June 2014

•  Aim of report – strengthen ASIC as a regulator

•  61 recommendaPons

Increase range of civil & criminal penalPes available to ASIC

ASIC to increase potency of enforceable undertakings

Expand protecPons for corporate whistleblowers

ASIC to pursue complex liPgaPon

Recommenda)on 3 – ASIC to carefully monitor the implementaPon of the credit laws with parPcular aXenPon to acPviPes that may fall outside the legislaPon


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AFR – 25 September 2014 © Copyright 2014 by K&L Gates. All rights reserved.

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2010

03.2010 FATCA enacted by the US Congress to prevent tax evasion by US residents

April 2014

30.6.15 Finalise due diligence review of individual accounts with balance > US $1 million

December Jan 2015

30.6.2016 §  Finalise due

diligence of individual & company accounts

31.7.16 §  Report for 2015

calendar year to be submitted to the ATO

June

1.7.14 Implement new account opening procedures to identify US persons

1.1.15 FATCA withholding tax implications begin for non-registered financial institutions

July 2016

1.1.15 §  Implement new account

opening procedures to identify US entities

§  Carry out due diligence for payments made to Nonparticipating Institutions

28.4.14 Australia & US enter into IGA for FATCA compliance

22.12.14 Register as Foreign Financial Institution with IRS


3. FATCA UPDATE

31.07.15 Report for 2014 calendar year to be submitted to the ATO

July


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4. INDUSTRY CODES OF PRACTICE

Industry Codes of PracPce

Revised Code of Banking PracPce Jan 2013 -‐ commenced 1 Feb 2014

ePayments Code -‐ commenced March 2013

Customer Owned Banking Code of PracPce -‐ commenced 1 Jan 2014

See “Pink Book” for changes to the industry codes & how they impact consumer credit

Further changes to FOS’ Terms of Reference


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5. TECHNOLOGY & REGULATION

Technology & regulaPon

Australian regulatory se_ngs in a global system

observaPons from the FSI

regulaPon of disrupPve technologies

electronic disclosure & markePng in social media

privacy & cybersecurity from electronic transacPons

Impact on regulation - there will be changes!

A seminar in itself! K&L Gates is hosPng seminars in Melbourne & Sydney


1.  NCCP changes

2.  Debt collection guidelines – 2014

3.  NCCP case update

4.  Protecting your ACL

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III. NCCP PROGRESS REPORT


Small amount credit contracts: §  limited fees §  obtain 90 day bank statement

§  addiPonal disclosure obligaPons

Non ADI loans under 15 days prohibited

Greater consistency between requirements for consumer leases & credit

contracts eg linked lessor provisions

New hardship regime – ASIC guidance to come

…

Remedy for unfair or dishonest conduct by credit service providers

ASIC has the power to make applicaPons & appear on behalf of

consumer & in its own right

Reverse mortgages: §  pre-‐contractual conduct §  documentary requirements §  enforcement

Consumer lease statements

Enhancements Act

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III. NCCP PROGRESS REPORT CONT.

1. NCCP CHANGES

See “Pink Book” for changes introduced by the Enhancements Act


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1. NCCP CHANGES CONT.

Consumer Credit fine-‐tuning regulaPons

SACC Amendment RegulaPons 12 June 2104

SACC -‐ brokerage fee subject to maximum

fee limits

Modifies s6(1) low-‐cost short term credit

contracts exempPon ≠ “membership fees”

Clarifies SACC & MACC disPncPon

Fix incorrect Regs cross references – see “Pink Book”

“mis-‐described amendments”

Simplify Reg numbering – tell us if

reg sequence deliberately omiXed eg no Reg 105I, 28O


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graphic: courtesy of www.dilbert.com


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2. DEBT COLLECTION GUIDELINES – 2014

Debt collecPon Guideline: for

collectors & creditors (July 2014)

Joint ACCC & ASIC

Replaces 1999 guidelines

Updates RG 96 -‐ Debt collec)on guideline for collectors and creditors

“Flexible, fair and realisPc” approach to debt collecPon

Protect privacy, no excessive communicaPon, reasonable contact Pmes

Care! No misleading representaPons re consequences of non-‐payment

Credit providers (CPs) must have internal complaints & disputes process

CPs must have adequate staff training

Compliance programs

See 6 page comparison table in “Pink Book” – sec4on 155 NCC commentary


Case name Court Date Summary of decision

Gray v Cash Converters International Ltd

Federal Court of Australia

Ongoing Class action with statements of claim of over $40 million. Allegations of breach of interest rate caps in NSW.

ASIC v The Cash Store Pty Ltd & Assistive Finance Australia Pty Ltd


26 August 2014 The Federal Court ruled that TCS & AFA failed to comply with their responsible lending obligations & that TCS acted unconscionably in selling consumer credit insurance that could never provide any benefit to their customers

ASIC v GE Capital Finance Australia


1 July 2014 Court ordered a penalty of $1.5 million for misrepresentations about credit limit increases

Hickie v ASIC Administrative Appeals Tribunal

29 November 2013

The Tribunal found that the banning order issued by ASIC was appropriate as Mr Hickie had displayed a serious disregard for the financial services laws.

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3. NCCP CASE UPDATE


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graphic: courtesy of ap-‐perspecPve.blogspot.com.au/2013/03/australian-‐government-‐to-‐leave-‐public.html

‘Debt’ …’Someday all of this will be yours’


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Financial services is constantly changing – cf Regulatory update papers at annual credit conference!

ASIC imposed audit – expensive!

Warning! Avoid paXern of: ignore law è breach è enforceable undertaking & penalPes

RMs must understand what they are responsible for

RMs must understand financial services laws

RMs must know their ACL condiPons! ACL protecPon – Responsible

Manager’s key


4. PROTECTING YOUR ACL


IV. ASIC ACTION

1.  ASIC’s powers

2.  Enforcement – balancing interests

3.  ASIC activities

24 klgates.com © Copyright 2014 by K&L Gates. All rights reserved.

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graphic: courtesy of www.dilbert.com


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Fines

Suspend or cancel an ACL

or AFSL

InformaPon gathering powers

Infringement noPces

InjuncPons Ban a person from engaging in credit

acPviPes

Accept enforceable undertakings

ASIC

IV. ASIC ACTION CONT.

1. ASIC’S POWERS


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1. ASIC’S POWERS CONT.

ASIC – more visible

enforcement

173 outcomes in small business area

83 outcomes in market integrity, corporate governance & financial services

1.1.14 – 30.6.16 256 enforcement acPons

banning or disqualificaPon orders

negoPated outcomes – eg enforceable undertakings


Sept

Aug

Retail bank – $40,800 fine – home loan ads ≠ disclose the minimum loan amount & other condiPons of offer

2014 Retail bank paid $17 million compensaPon for Storm Financial claims

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2. ENFORCEMENT – BALANCING INTERESTS

Car dealership –$42,500 penalty & $36,250 refund to consumers – credit acPviPes outside Point of Sale exempPon

Supermarket chain – changes to signage – credit card surcharge fees disclosure

Consumer lessor – $20,400 penalty – misrepresentaPon of $1 buyout claims – no right to purchase in consumer lease

The Cash Store – Federal Court -‐ responsible lending breaches & unconscionable conduct (CCI) – penalty hearing on 15.12.14


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2. ENFORCEMENT – BALANCING INTERESTS CONT.

The Cash Store -  ASIC iniPated legal

proceedings -  Federal Court 2014

Failure to provide credit guides – no copies on loan files*

Unconscionable conduct – Over 182,000 CCI policies issued – 43 consumers only received a benefit

“Wholesale failure in process” – no inquiries as to expenses other than accommodaPon, checklists were “occasionally” completed

Credit laws – 7 breaches – civil penalPes

No exoneraPon for credit provider outsourcing loan services

Penalty hearing scheduled for 15 December 2014

RG 209 – ASIC update with court findings?


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graphic: courtesy of www.smh.com.au/photogallery/federal-‐poliPcs/cartoons/ron-‐tandberg


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3. ASIC ACTIVITIES

Property developers – purchase price shorqalls & vendor

Report 410 -‐ low-‐doc lending -‐ released on 23.09.14

AFSL breach reporPng review

ASIC ‘hot spots’

focus Hardship guidance?

Updates to RG 209 – responsible lending?

Add on insurance sales

Care! retrospecPve state legislaPon breach invesPgaPons!


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1.  Key reforms – March 2014

2.  Privacy hot spots

3.  Privacy war stories

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V. PRIVACY HOT SPOTS


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Creation of the Australian Privacy Principles (APPs)

Privacy Commissioner

powers – fines of up to $1.7m for companies!

Part IIIA – credit reporting provisions completely revised

– EDR impact

New information in policies & documents

§  Privacy (Credit ReporPng) Code 2014 (v1.2) – 24 April 2014 §  OAIC to be disbanded from 1 Jan 2015 but the Privacy Commissioner will conPnue to administer

the Privacy Act

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V.  PRIVACY HOT SPOTS CONT.

1. KEY REFORMS – MARCH 2014

Mandatory data

breach reporting??


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Reasonable steps to comply &

maintain privacy compliance

integrity – civil penal4es -‐ $1.7

million

periodic review

s of compliance

framework for

appropriateness

periodic informaPon audits

monitor / audit 3rd parPes to whom informaPon is disclosed

monitor data accuracy,

destrucPon & security privacy reviews / privacy impact assessments – projects with

personal informaPon risks / new products or services

V. PRIVACY HOT SPOTS CONT.

1. KEY REFORMS – MARCH 2014 CONT.


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1. KEY REFORMS – MARCH 2014 CONT.

K&L Gates privacy modules create ‘reasonable steps to comply’ paper trail

APP Checklist For periodic review of compliance with APPs

Credit Reporting Checklist

For periodic review for compliance with Part IIIA of Privacy Act & CR Code

Privacy Impact Assessment questionnaire

Short form checklist for projects with personal information risks / new products or services

Privacy Act Compliance Manual

Manual setting out obligations under Privacy Act, Spam Act and Do Not Call Register Act

IT Security Policy Policy for staff IT security privacy obligations

HR Privacy Policy

Policy for collecting, using & disclosing staff personal information


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Commercial credit providers & EDR

Care! Privacy rules

are sPll developing

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Statutory tort of privacy

Mandatory data breach reporPng


2. PRIVACY HOT SPOTS

COSL and credit repair

PRDE industry agreement


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Can you iden4fy the gentlemen in the corner?


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graphic: courtesy of www.gocomics.com/nonsequitur


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3. PRIVACY WAR STORIES

Care! ASIC & ACCC may ini4ate ac4on for privacy breaches – & Privacy Commissioner!!


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Australian Financial Review – Pg 47 – 17 September 2014


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VI. PAYMENTS ACTIVITY

Today 2015 2016

Establishment of Australian Payments Council

Chip & PIN

New Payments Plaqorm: vendors shortlisted to develop real Pme payment transfers

Nov

Apple Pay Bitcoin & Espos

Inconsistent global posiPon?


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VII. AML UPDATE

Customer ID changes commenced 1 June 2014 – must create a transiPon plan by 1 November 2014 to take advantage of AUSTRAC’s non-‐enforcement policy

AML update

Statutory Review of AML/CTF regime to coincide with mutual evaluaPon by FATF – report to be released in February 2015

Updates to AML/CTF Program to reflect changes to the AML/CTF Rules

External audits of AML/CTF compliance – check your AML/CTF Program for review Pmeframes


CompePPon law review – March 2015

Care! Personal Property SecuriPes reform

conPnues -‐ lenders are making mistakes in their PPSR

registraPons!

Late payment fees – class acPon

Crowd funding -‐ ASIC guidance & CAMAC Report

‘Peer-‐to-‐peer’ – lending growth -‐ regulatory response

UCT for small business??

Financial services keep changing

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VIII. WHAT’S ON THE HORIZON?

graphic: courtesy of firstdogonthemoon.com.au/


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PART B – USA

See our K&L Gates blog at hXp://www.klgates.com/blogs/

Regulatory landscape in the US

Myriad of Federal & State laws

FATCA – global impact

Ongoing regula4on.. Consumer Financial ProtecPon Bureau (CFPB) – primary regulatory body supervising depository insPtuPons

Tax & mulP-‐naPonals

ATO sharing tax informaPon globally


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PART C – EUROPE/UK

The global plaqorm …

Rise of the regulator & penalPes

Google – Right to be forgoXen (R2BF)

Financial Conduct Authority (FCA) – from 1 April 2014 regulates consumer credit

FCA – credit firms must comply with rules in Consumer Credit Sourcebook – 28 Feb 2014


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Penalty Organisation Reason

£14.5m RBS & NatWest Providing unsuitable mortgage recommendations to consumers

£2.39m Credit Suisse International

Failing to ensure products promotions were clear, fair & not misleading

£1.4m Yorkshire Building Society

Failing to ensure products promotions were clear, fair & not misleading

£12.3m Santader Failing to ensure suitable advice provided to consumers

£30.6m HomeServe Membership Ltd

Mis-selling insurance policies, the Board insufficiently engaged with compliance

PART C – EUROPE/UK CONT. FCA Enforcement – 2014 – £270 million in fines


QUESTIONS?

47 klgates.com © Copyright 2014 by K&L Gates. All rights reserved.

A super team effort! Thanks to:

Jim Bulling

Betsy-‐Ann Howe

Alan Maclean

Brad Lynch

Abhishek Bansal

Katherine Montano

Joanne Eslick

Adele SuXon

Nick Cerche

Daniel Knight

andrea beatty - k&l gates - annual regulatory update of australian credit law

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