The December quarter of 2016 was yet another eventful one with ASIC being very active (despite their apparent resourcing challenges!). We have observed the following key trends continue during the quarter:

� ASIC’s focus on customer outcomes in enforcement activities and policy initiatives;

� technology being placed at the centre of initiatives; � continuing concern about cyber-threats and

financial crime; and � continued collaboration and sharing of

information with international regulators to help achieve mutual goals.

As discussed elsewhere in this Quarterly Update, in 2017 we can expect ASIC’s key areas of focus to include:

� risk management – ASIC’s new regulatory guide on adequacy of risk management systems of responsible entities (REs) of registered schemes is due out in Q1;

� digital disruption and cyber threats;

Following is a summary of changes in the Australian financial services industry that we consider to be most relevant to financial services organisations such as yours. Should you require more specific information in relation to any topic, please let us know. This Quarterly Update should not be taken as legal advice.

Regulatory changes in the financial services industry

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� culture –which includes attitudes towards conduct risk, remuneration structure, how confidential information and conflicts of interest are managed and the effectiveness of supervisory and risk management frameworks;

� how sell-side research and corporate advisory divisions manage confidential information and conflicts of interest;

� misalignment of retail product design and distribution and consumer understanding (particularly for complex products like retail OTC derivatives);

� handling of client money; � capital requirements; � continuation of the Wealth Management Project

(which shines the spotlight on the financial advice businesses of AMP and the 4 big banks);

� implementing regulatory changes to facilitate Australia’s participation in the Asia Region Funds Passport; and

� focus on ASX’s operational and technological risk management arrangements.

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GENTLE REMINDER: THINGS YOU SHOULD HAVE DONE SINCE THE LAST QUARTERLY UPDATEAs a gentle reminder, following are some things you should have actioned since receiving our last Quarterly Update:

�turned your minds to your product disclosure statements (PDS) and the impact of ASIC Regulatory Guide 97: Disclosing fees and costs in PDSs and period statements (RG 97). Although the application of RG 97 has been delayed until 30 September 2017 (see the good news below!), product issuers must by 31 January 2017, advise ASIC in writing:

� which PDSs are to be the subject of the extension; � that further information about fees and costs will be given by 1 March 2017; and � whether any of the financial products covered in the relevant PDS will not be offered

for issue after September 2017.Product issuers must by 1 March 2017, using an Excel spread sheet form created by ASIC, provide ASIC with information about the fees and costs that would be required to be included in the PDS in order to comply with the relevant requirements; and

� considered whether your funds qualify as “managed investment trusts” and, if so, determined whether you wish to amend your funds’ constituent documents to allow you to take advantage of the attribution managed investment trust (AMIT) regime. Trustees have until 30 June 2017 to make any required amendments to trust deeds if you wish to make an election for the AMIT regime to apply for the income year ending 30 June 2018. For REs of registered schemes, relief from the requirement to hold a meeting of members is available under ASIC Corporations (Attribution Managed Investment Trusts) Instrument 2016/489.

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TABLE OF CONTENTS

SECTION & ARTICLE PAGE NO.

Hottest topics 5

� Christmas came early - commencement of fees and costs disclosure requirements delayed 5

� Updated nominee, custody and platforms policy released with delayed commencement for dispute resolution obligation 6

� ASIC open the gate for more funds to be offered through ASX mFund 6 � Product design and distribution obligations – open for consultation 7 � ASIC moving closer to industry funding model 8

Regulatory innovation initiatives 9

� ASIC unveils “regulatory sandbox” and world-first fintech licensing exemption 9 � ASIC facilitate cross-border innovation 11 � Dedicated AUSTRAC assistance for fintechs and start-ups 11 � Productivity Commission Inquiry on Data Availability and Use 11

ASIC Enforcement activity 11

� Multinational corporation fined for insider trading in Leighton Holdings shares 11 � Long time coming - AWB chairman breached duty 12 � ASIC breach of director duties case against LM Investment Management trustee

directors fails 12

� NAB and CBA enter into enforceable undertakings after ASIC investigation spots compliance failures in their foreign exchange businesses 15

ASIC ask what we really think – consultation papers for the December quarter 15

� Proposed repeal of class orders about holding client assets 15 � Other ASIC consultation papers 16

ASIC reports and reports 17

� ASIC 2015-2016 Annual Report released 17 � The aftermath of 19 September 17 � Market integrity report 18 � Licensing activity report 18

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Other ASIC activity 19

� Relief for Luxembourg regulated fund managers servicing wholesale clients in Australia 19

� Opt-in relief for FPA Code subscribers 20 � Updated prospectus disclosure guidance 20 � 31 December financial reports 21

Other Regulators 21 � AUSTRAC - 2015-2016 Annual Report released 21 � AUSTRAC - AML/CTF risk assessment of the superannuation sector 21 � AUSTRAC - AML/CTF risk assessment of the financial planning sector 22 � AUSTRAC - International cooperation 22 � AUSTRAC - Deregulation of anti-money laundering legislation 23 � Council of Financial Regulators - Clearing and settlement of cash equities 23 � ASX – Admissions requirements for listed entities updated 23 � APRA 24

Recent Law Reform 24

� Unfair contract laws now protecting small business 24 � Client money requirements for margining of non-centrally cleared derivatives for

wholesale clients amended 25

Watch this space – coming soon 26

� ASIC activity 26 � Law Reform Initiatives – Collective investment vehicle (CIV) non-resident

withholding taxes 26

� Law Reform Initiatives – Anti-money laundering 27 � Law Reform Initiatives – Professional standards for financial advisers 27 � Law Reform Initiatives – Financial benchmark manipulation prevention measures 28 � Law Reform Initiatives – Client money requirements for OTC derivatives 28 � Law Reform Initiatives – Superannuation 28 � Law Reform Initiatives – Crowd funding legislation 29

Review and Inquiries 29

� Review of the Big 4 banks 29 � ASIC enforcement review taskforce 30 � Expert panel releases interim report on dispute resolution framework 31 � Whistle blower protection review 31

Update on ASIC Instruments 32

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HOTTEST TOPICS

CHRISTMAS CAME EARLY - COMMENCEMENT OF FEES AND COSTS DISCLOSURE REQUIREMENTS DELAYEDIn what was perhaps the most welcome news of the December quarter and an early Christmas present, on 29 November ASIC announced a conditional extension of the transition period for issuers of PDSs for superannuation and managed investment products to comply with updated fees and costs disclosure requirements contained in ASIC Class Order [CO 14/1252] Technical modifications to Schedule 10 of the Corporations Regulations, which were due to commence from 1 February 2017. The transition period was extended following significant industry lobbying expressing concerns that accurate information would not be ready and available by 1 February 2017.To take advantage of the extension until 30 September 2017, product issuers must:

� by 31 January 2017, advise ASIC in writing (by email to feeandcostdisclosure@asic.gov.au):

> which PDSs are to be the subject of the extension;

> that further information about the products that are the subject of the PDSs will be given by 1 March 2017; and

> whether any of the financial products covered in the relevant PDSs will not be offered for issue after September 2017;

� by 1 March 2017, using an Excel spreadsheet form created by ASIC, provide ASIC (by email to feeandcostdisclosure@asic.gov.au) with information about the fees and costs that (a) apply as at 30 June 2016 and (b) would be required to be included in the PDS in order to comply with the relevant requirements.

ASIC released the relevant form and instructions on 20 December.If the above requirements are not met, the transition period will end on 1 February 2017.

REs of registered schemes must provide ASIC with information about:

� the class of interest in a managed investment scheme with the largest amount of assets compared to other classes in all the schemes that the RE manages; and

� any class of interest that has more than $100m in assets.

REs do not need to include information about other classes of interest in their 1 March notification, but should have it ready in case ASIC ask for it (in which case an RE must provide the information within 6 business days).REs will not have to take these steps if they:

� are already complying with the new disclosure requirements;

� do not have a PDS in use during February 2017); or

� will not have a PDS on or after 30 September 2017 (i.e. where a product will no longer be sold under a PDS after 30 September 2017).

ASIC will take a facilitative approach towards issuers who choose to comply with the updated requirements before 1 October 2017, and encourage issuers to comply as early as possible. They have warned that this will be the final extension of the transition period.See ASIC Media Release (29 November) and ASIC Media Release (20 December).

To take advantage of the extended transition date for RG 97 (being 30 September 2017), REs must:� by 31 January 2017, advise ASIC in

writing (among other things) which PDSs are to be the subject of the extension;

� by 1 March 2017 and for funds with FUM of $100 million or more, using an Excel spread sheet form created by ASIC, provide ASIC with information about the fees and costs that (a) apply as at 30 June 2016 and (b) would be required to be included in the PDS in order to comply with the relevant requirements.

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UPDATED NOMINEE, CUSTODY AND PLATFORMS POLICY RELEASED WITH DELAYED COMMENCEMENT FOR DISPUTE RESOLUTION OBLIGATIONIn July ASIC undertook consultation on some policy and legislative instrument updates relating to platform operators and providers of nominee and custody services in Consultation Paper 264 Remaking ASIC class order on nominee and custody services and proposed changes to platforms policy. On 15 December ASIC announced the release of new and updated legislative instruments and an updated Regulatory Guide 148 Platforms that are managed investment schemes and nominee and custody services. One of the key regulatory changes proposed was that, for issues or sales after 30 June 2017, retail clients of platforms and nominee and custody services would need to be given access to the underlying product issuer’s internal and external dispute resolution system in the event they had concerns about the products they invested in through the platform, nominee or custody service.The changes ASIC have made in response to submissions received include:

� allowing a non-public company to be a nominee and custody service operator (ASIC’s consultation paper proposed that it must be a public company);

� clarifying that the requirement to provide access to the underlying issuer’s dispute resolution system is not applicable to investments made by wholesale clients;

� delaying the commencement of the dispute resolution access requirement until 1 January 2018 (to allow more time for operators to conduct due diligence and make the necessary changes); and

� clarifying that they will not require any divestment of existing investments held through a platform or nominee and custody service.

At the very least, this will mean changes to internal and external dispute resolution procedures, as well as PDSs, with an effective implementation date of 1 January 2018 at the latest. See ASIC Media Release.

Indirect retail clients investing in a registered scheme on or after 1 January 2018 (i.e. retail clients investing in a registered scheme via platforms and nominee and custody services) must be given access to the RE’s internal and external dispute resolution system in the event they have concerns about the products they invested in through the platform, nominee or custody service. Changes to internal and external dispute resolution procedures, as well as PDSs, will need to be implemented before then.

ASIC OPEN THE GATE FOR MORE FUNDS TO BE OFFERED THROUGH ASX MFUNDThe ASX mFund settlement service allows applications and redemptions of unlisted managed funds to be made electronically and records holdings using the Clearing House Electronic Sub-register System (CHESS). When the mFund service was launched, only “simple managed investment schemes” that were offered under a PDS no more than 8 pages in length were eligible to be offered through mFunds. ASX made an application to ASIC requesting that the service be expanded to cover funds that were not simple managed investment schemes (including, for example, hedge funds). On 22 December ASIC announced that the mFund service is able to expand to include more funds, provided certain criteria under the ASX Operating and Settlement Rules are met, which include liquidity of scheme property and redemption requirements.See ASIC Media Release.

In what is seen as a victory for the ASX, ASIC makes way for hedge funds and other non-simple managed investment schemes to be made available via the ASX’s mFund service.

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PRODUCT DESIGN AND DISTRIBUTION OBLIGATIONS – OPEN FOR CONSULTATIONOn 13 December the Minister for Revenue and Financial Services announced the release of a proposals paper seeking feedback on the following proposed measures to increase consumer protection in the financial services industry:

� requiring issuers of financial products (other than ordinary shares) made available to retail clients to:

> identify the appropriate target and non-target markets for their products;

> match distribution channels to the appropriate target market; and

> review product design and distribution arrangements “with reasonable frequency” to ensure that they remain appropriate;

� requiring distributors (who are not providing personal advice) of financial products (other than ordinary shares) made available to retail clients to:

> have in place reasonable controls designed to ensure that the products are distributed consistently with the expectations of the product issuer; and

> comply with reasonable requests for information from the issuer (when the issuer reviews distribution arrangements); and

� giving ASIC a “product intervention power” that could be used with respect to any financial products that are available to retail clients, as well as consumer credit products, where they have identified a “risk of significant consumer detriment”. The types of action ASIC could take in exercising this power include:

> requiring additional disclosure to be provided;

> requiring warning statements to be given; > requiring advertising documents to be

amended; and/or > restricting or banning the distribution of a

particular product.

At least some of these actions already form part of ASIC’s regulatory toolkit and we already see them deployed regularly. The proposed “product intervention” would last for no more than 18 months, which could be extended by ASIC or government action if appropriate. It is proposed that ASIC would be subject to some additional accountability and transparency measures.The proposals reflect recommendations made in the Financial System Inquiry (FSI) report issued in 2015. The proposals paper cites similar or comparative regulation in other jurisdictions (such as the United Kingdom (UK), Hong Kong and the United States (US)) in support of the recommendations.The proposed transitional arrangements are as follows:

� there will be a 6 month period from the date of Royal Assent for product issuers and distributors to make the necessary changes. Any new products that are first offered after that 6 month period has ended must comply with all the new obligations; and

� for products that are available before the new requirements commence – there will be a 2 year transition period before issuers and distributors must comply with all the new obligations. It isn’t entirely clear but we believe that products issued in the initial 6 months following Royal Assent would also have the benefit of this 2 year transition period.

Consultation closes on 15 March 2017. We welcome the longer than usual and comparatively reasonable consultation period.See the Minister’s Media Release.

New proposals will, if implemented, have a profound impact on the processes for design and distribution of financial products and the costs of new product development, as well as heighten the risks for REs in developing new products. Consultation closes on 15 March 2017.

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ASIC MOVING CLOSER TO INDUSTRY FUNDING MODELOn 7 November Treasury released two proposal papers for consultation which set out a framework under which ASIC would operate under a “user pays” model and recover its running costs directly from the entities it regulates through annual levies (approximately 88%) and fees-for-service (for the remainder of costs).One proposal paper is issued by Treasury and describes the overall framework. The other proposal paper is issued by ASIC and gives a breakdown of ASIC’s costs of regulating each industry sector and sub-sector, showing how levies would be calculated.The proposal covers the annual levies component of the industry funding model. It involves using data on ASIC’s regulatory costs from the previous year and allocating it between industry sectors (corporate, deposit taking and credit, investment managers and superannuation, insurance, financial advice and market infrastructure and intermediaries) and sub-sectors. ASIC will then determine the amount which each regulated entity within a particular sub-sector will pay – the amount could be a flat fee paid by all sub-sector participants or it could be a proportionate contribution determined in accordance with an allocation formula.Refinements were made to the original proposal canvassed in 2015 following extensive consultation and feedback. The revised model is intended to spread levy costs more fairly between small and larger entities and avoid significant cost increases from small changes in business activities. The model for entities that hold an Australian financial services licence (AFSL) has been simplified so that licensees pay either a flat levy or an activity based levy for each AFSL authorisation they hold. For the 2016-2017 financial year, ASIC have estimated that their costs to regulate providers of investment management, superannuation and related services will be approximately $48.8 million, which represents about 20% of ASIC’s overall budget. Of this amount, nearly half the costs are attributed to regulation of REs of registered schemes. Under the proposed model, ASIC have

proposed that REs would pay a minimum annual levy of $18,000 plus $0.05 per $10,000 of funds under management in excess of $250 million. The minimum levy has been lowered from the original proposal following stakeholder feedback, which will be a relief to the smaller REs. Other participants in this industry sector (including wholesale trustees, custodians, IDPS operators and MDA operators) would pay a flat levy for the 2017-2018 year, with graduated levies to be introduced for following financial years. Investment managers that do not operate funds will fall into the market infrastructure and market intermediaries sector, where flat annual levies are proposed for providers of general financial product advice and financial advice to wholesale clients only.Additional ASIC transparency and accountability measures have been proposed in response to previous feedback. The federal government will remain responsible for determining ASIC’s funding, but would take account of industry stakeholder feedback on the appropriateness of the model, funding levels and ASIC’s use of its resources. ASIC would need to consult annually with each sector and sub-sector about the strategic risks they were facing. ASIC would also have to produce an annual Cost Recovery Implementation Statement outlining costs and costs recovery of its regulatory activities and disclosing against some key indicators.As well as the additional homework for ASIC, regulated entities would also need to report certain data through to ASIC to input into their metrics to determine the appropriate allocation of costs among industry participants.Following concerns expressed in stakeholder feedback on the initial proposal (for example, the impact on a new industry participant of paying a $21,000 fee to make a novel relief application), the fees-for-service aspect has been temporarily parked, with further work to be done before it is introduced. The current ASIC fees framework will now remain in place until 1 July 2018.

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Consultation closed on 16 December. Draft legislation will be released for public consultation before it is introduced into Parliament. The industry funding model is due to commence in the second half of 2017, but industry participants would not receive their first bill until early 2019 (to recover ASIC’s costs from the financial year ending 30 June 2018). See ASIC Media Release.

AFS licensees are likely to pay either a flat levy or an activity based levy for each AFSL authorisation they hold. For REs, ASIC proposes that for the 2016-2017 financial year an RE pay a minimum annual levy of $18,000 plus $0.05 per $10,000 of funds under management in excess of $250 million. Wholesale trustees, custodians, IDPS operators and MDA operators would pay a flat levy for the 2017-2018 year, with graduated levies to be introduced for following financial years. Investment managers that do not operate funds and who provide financial advice to wholesale clients only will pay a flat levy only. The fees-for-service aspect has been temporarily parked.

REGULATORY INNOVATION INITIATIVES

ASIC UNVEILS “REGULATORY SANDBOX” AND WORLD-FIRST FINTECH LICENSING EXEMPTIONFollowing consultation undertaken in June 2016, on 15 December ASIC announced the launch of the “regulatory sandbox” framework, which includes:

� an alleged “world first” class waiver providing AFSL and Australian credit licence (ACL) exemptions for eligible financial technology (fintech) businesses; and

� a policy under which fintech businesses ineligible for the class order relief may seek tailored, individual exemptions from ASIC (which is similar to arrangements already in place in some foreign jurisdictions).

The intention of the new class order relief is to alleviate barriers to innovation in the financial services industry by allowing business concepts to be validated and refined before a business incurs the relatively significant costs associated with obtaining and maintaining an AFSL or ACL. It also provides them with the opportunity to seek increased investment to assist with their compliance costs once they are ready to obtain their licence.The class order relief involves eligible businesses being allowed to provide certain financial services for up to 12 months without holding an AFSL, provided that they:

� provide services to no more than 100 retail client customers (no restrictions apply to wholesale clients);

� have total exposure of no more than $5 million for all customers (retail and wholesale clients);

� meet per customer product exposure limits: > $50,000 for general insurance; and > $10,000 for other products (deposit

products, payment products, investments in ASX listed or quoted securities and simple managed investment schemes);

� have adequate compensation arrangements in place (including professional indemnity (PI) insurance of $1 million and run-off cover for 12 months);

� meet the requirements for internal and external dispute resolution systems that apply to licensees;

� meet certain conduct and disclosure requirements – including:

> warning customers that they are not licensed, are operating under the testing exemptions and that therefore customers may have less protection; and

> providing some of the information that would otherwise need to be included in a Financial Services Guide (FSG);

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� provide ASIC with certain prescribed documents and information before they commence business, some of which will be made publicly available on the ASIC website; and

� report certain information to ASIC within two months of the conclusion of the testing period (which ASIC will not generally release to the public).

Following feedback obtained in the consultation process, ASIC:

� dispensed with the requirement for a business relying on the relief to be sponsored by an organisation recognised by ASIC (e.g. not-for-profit industry association) that would conduct a preliminary assessment on the testing model and confirm that the operator was a ‘fit and proper person’;

� extended the exemption to cover registered foreign companies as well as companies incorporated in Australia;

� increased the length of the testing period from 6 months to 12 months – which was expected to assist businesses relying on the relief to obtain the required PI insurance coverage of $1 million;

� broadened the range of financial products that could be offered in the test environment - ASIC had proposed to only cover advice and arranging to deal in listed or quoted Australian securities, simple managed investment schemes and deposit products. The exemption now also covers some general insurance and payment products. It does not apply to products or services that involve ongoing obligations or services relating to complex or long-term products; and

� increased the exposure limit to each retail client above the proposed $10,000 for general insurance to $50,000 maximum sum insured. The $10,000 limit still applies to other products.

Businesses that initially rely on the class order exemption can apply to ASIC for individual relief to increase the length of the testing period or the client exposure limit.

Existing licensees are eligible to apply to ASIC for individual relief if they wish to test an innovative product or service that is not covered by their AFSL authorisations.A new Regulatory Guide 257 Testing fintech products and services without holding an AFS or credit licence has also been released.ASIC have also updated the guidance contained within Regulatory Guide 105 Licensing Organisational competence (RG 105) to:

� allow “small-scale, heavily automated businesses” to nominate a responsible manager (RM) who will not have day-to-day involvement in the business to provide regular sign-off on the licensee’s processes and systems and the quality of financial services they provide. For the first year of operation, the sign-off must be obtained every 6 months and, thereafter, it must be provide at least annually. The licensee must nominate a director who has day-to-day involvement in the business to take responsibility for ensuring that the RM giving sign-off is appropriately consulted and engaged; and

� provide examples that demonstrate how ASIC will assess submissions about the knowledge and skills of a nominated RM under Option 5 of RG 105.

To walk the innovation talk, ASIC provided some infographic summaries that are intended to simplify the key messages.See ASIC Media Release.

To alleviate what it perceives to be barriers to innovation in the financial services industry, ASIC offers AFSL and ACL exemptions for eligible fintech businesses. Existing licensees are eligible to apply to ASIC for individual relief if they wish to test an innovative product or service that is not covered by their AFSL authorisations.

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ASIC FACILITATE CROSS-BORDER INNOVATION ASIC have signed agreements with other foreign regulators in countries that, like Australia, are seeking to establish themselves as centres of innovation. In the December quarter the following agreements were signed:

� a Co-operation Agreement with the Capital Markets Authority of Kenya (yes, Kenya!) that covers the sharing of information on emerging market trends and regulatory issues arising from growth in innovation (see ASIC Media Release);

� an agreement with the Ontario Securities Commission to assist innovative businesses established in one regulator’s market to enter the market regulated by the other regulator, and to exchange information on emerging market trends and their potential regulatory impact (see ASIC Media Release);

Earlier in the year ASIC signed agreements of a similar nature with the UK Financial Conduct Authority (FCA) and the Monetary Authority of Singapore (MAS).

DEDICATED AUSTRAC ASSISTANCE FOR FINTECHS AND START-UPSThe Australian Transaction Reports and Analysis Centre (AUSTRAC) have also jumped on the fintech assistance bandwagon and established a dedicated online contact form that allows start-ups and fintech business operators to seek advice from AUSTRAC.See AUSTRAC Media Release.

PRODUCTIVITY COMMISSION INQUIRY ON DATA AVAILABILITY AND USESThe Productivity Commission are in the midst of a 12 month public inquiry investigating how the availability and use of public and private sector data in Australia can be improved. Following the release of an Issues Paper on 18 April, a draft report was released on 3 November.

This inquiry is linked to recommendations to improve the access and use of data for the benefit of innovation and competition arising out of the FSI report and the Review of Competition Policy held in 2015. The Terms of Reference also require the importance of privacy, security and intellectual property to be considered.The draft report recommends major reform to Australia’s data policy framework to improve open access to data, following findings that Australia lags behind other countries including the US and the UK. The features of the proposed reforms would include:

� data sharing between different government agencies;

� setting up an Office of the National Data Custodian to oversee the regulatory framework;

� accreditation of authorities that are allowed to release data publicly or restrict access to “trusted users”;

� requiring all federal government agencies to publish data registers on data.gov.au;

� designation of “national interest datasets” (which could include both public and private datasets); and

� enhancing consumer rights to access, use, amend and share their “customer data” (which would include personal information as well as online transactions and activity).

Consultation on the draft report closed on 12 December and the Commission’s final report is due to be delivered in March 2017.

ASIC ENFORCEMENT ACTIVITY

MULTINATIONAL CORPORATION FINED FOR INSIDER TRADING IN LEIGHTON HOLDINGS SHARESOn 8 December ASIC announced that the Federal Court had ordered Hochtief Aktiengesellschaft (Hochitef AG) to pay a $400,000 financial penalty plus ASIC’s legal costs ($50,000) for contraventions of the insider trading laws that it had admitted.

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The Chief Financial Officer of Hochtief AG had obtained inside information about the financial results of Leighton Holdings Limited (Leighton) before the information had been released to the market Hochtief AG had then facilitated its Australian subsidiary’s trading in Leighton shares based on that information.Wigney J in the Federal Court noted that, while this was an inadvertent rather than a deliberate breach, there was a serious failure on the part of Hochtief AG to have in place appropriate systems and procedures to prevent insider trading. Wigney J said the penalty should be “sufficiently large to send a strong message to large multinational companies, like Hochtief, that have operations in Australia, that they should ensure that they have established suitable and effective compliance systems, and conducted appropriate training, concerning Australia’s insider trading prohibition.” Hochtief AG also entered into an enforceable undertaking with ASIC, which includes obligations to make 2 payments of $103,400 (which represented the notional profits of the inside trade) for the benefit of financial literacy initiatives.See ASIC Media Release.

Large multinational companies that have operations in Australia have been told they should establish suitable and effective compliance systems, and conduct appropriate training, concerning Australia’s insider trading prohibition.

LONG TIME COMING - AWB CHAIRMAN BREACHED DUTYFollowing a series of inquiries that began more than 10 years ago, ASIC’s commencement of civil penalty proceedings in December 2007 and a 9 week trial that ended in December 2015, on 15 December the Supreme Court of Victoria decided in ASIC’s favour that the former chairman of AWB Limited (AWB), Trevor Flugge, had breached his duties as a director in connection with payments AWB made to the Government of Iraq in contravention of United Nations (UN) sanctions.

The Court held that Mr Flugge had breached the obligation under s180(1) of the Corporations Act 2001 (Cth) (Corporations Act) for directors to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of the relevant company. The breach involved failing to make adequate enquiries about the propriety of payment of certain inland transportation fees which, it transpired, were paid to the Iraqi government in breach of UN sanctions. However, the Court was not satisfied that Mr Flugge had contravened section 181, which requires directors to exercise their powers and discharge their duties in good faith in the best interests of the company and for a proper purpose, because ASIC had not established that he knew AWB was making the payments contrary to the UN sanctions.The hearing on penalties with respect to Mr Flugge will take place on 16 February 2017 and ASIC are seeking:

� a declaration of contravention; � the disqualification of Mr Flugge from managing

a corporation; and � a pecuniary penalty.

See ASIC Media Release.

ASIC BREACH OF DIRECTOR DUTIES CASE AGAINST LM INVESTMENT MANAGEMENT TRUSTEE DIRECTORS FAILSOn 23 December Edelman J in the Federal Court dismissed ASIC’s case against three former directors of LM Investment Management (LMIM), rejecting ASIC’s claims that they had breached their directors’ duties by failing to act with the proper degree of care and diligence. While the decision in part reflected deficiencies in the ASIC pleadings and evidence, this case nonetheless serves to demonstrate that:

� proper drafting of a trust deed can confine the duties and limit the liability of the trustee; and

� disclosure of risks to investors can serve to protect the position of a trustee / manager of a managed investment scheme.

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The case concerned a decision to lend money from the assets of the LM Managed Performance Fund (LMPF), an unregistered managed investment scheme of which LMIM was trustee, to a Gold coast property development company for a development project.While this has no particular relevance to the legal analysis, in true Gold Coast style some of the standout features of the development were to include landscaping by (celebrity landscaper) Jamie Durie, a beach volleyball centre run by (former Olympic beach volleyball player) Natalie Cook, a swim school run by (former Olympic swimmer) Samantha Riley and a new model “world first” wave pool that would be endorsed by (multiple time world champion surfer) Kelly Slater.LMPF had been marketed only to wholesale investors investing through financial advisers as a fund that was seeking high returns through investment in second mortgages and direct property interests, which involved a significant level of risk. The conduct that ASIC alleged constituted a breach of duty was a decision to increase an existing loan from $180 million to $280 million (although the actual additional outlay from LMPF would only be $16.5 million due to the way the loan arrangements had been structured). It appeared from the evidence that the decision to approve the additional loan funds was made in August 2012 and the execution date of the document had been backdated to July 2012.At the relevant time, the developer needed to refinance in order to continue the property development project. LMIM’s Chief Financial Officer had expressed a view that LMPF’s best prospect of obtaining repayment was to find someone else to take over its funding position after Stage 1 of the project had been completed. Further funding was required before Stage 1 could be completed.

ASIC argued that LMIM failed to act as a prudent trustee and, in approving the increase to the loan, they exposed LMIM to the foreseeable risk of investors commencing civil proceedings against the company. ASIC submitted that an “independent feasibility report” ought to have been obtained prior to deciding whether to lend the additional funds, and that failure to do so increased the risk of capital loss.

ASIC argued that LMIM failed to act as a prudent trustee and, in approving the increase to the loan, the directors exposed LMIM to the foreseeable risk of investors commencing civil proceedings against the company. ASIC submitted that an “independent feasibility report” ought to have been obtained prior to deciding whether to lend the additional funds, and that failure to do so increased the risk of capital loss (being default by the developer borrower if estimated cash flows from the development were not realised).Edelman J found that ASIC had failed to establish any breach of trust and failed to prove that there was any reasonable alternative open to LMIM or the directors other than to approve the increase to the loan in the circumstances. His Honour noted that, while ASIC emphasised that LMIM should not have increased the loan amount, they failed to articulate what a prudent trustee in LMIM’s position should have done. Further, to the extent ASIC alleged that the directors had caused LMIM to act imprudently, the LMPF trust deed excluded the duty for LMIM as trustee to act prudently. Edelman J did not accept ASIC’s argument that the Trusts Act 1973 (Qld) did not allow that duty to be excluded. In any event, ASIC had not shown that the alleged breach of trust caused any loss, or that any claim by unitholders of LMPF against LMIM for breach of trust would have a reasonable prospect of success. Edelman J, in considering what the prospects might have been in any action by unitholders, noted at paragraph 424 that while LMIM “could have taken greater care and employed greater prudence”, “the test for a prudent person is not one of perfection, nor is it whether more prudence could have been taken than was exercised.” His Honour held that ASIC had failed to establish that a different decision would necessarily have been made by LMIM if it had obtained an independent feasibility report. Edelman J was also satisfied on the evidence that if LMIM had either refused to advance the further funds or deferred its decision to advance further funds, there would have been a greater risk of loss to LMPF, of a greater magnitude, and a higher probability of any civil action by unitholders against LMIM succeeding.

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As well as the deficiencies in their legal arguments, ASIC were also let down by one of their expert witnesses. At paragraph 371 Edelman J noted observed that he had paid “scant attention to the key documents” and “displayed the worst characteristics of partisanship and could not, in any respect, be described as an independent expert”. Some of his responses referred to in the judgment border on comical. ASIC largely did not seek to rely on his evidence.Initially two other former directors had been joined as defendants but following the conclusion of the evidence ASIC withdrew their case against them. ASIC also failed in their claim that, in approving the increase to the loan and the associated charging of a re-establishment fee to the developer, one of the three directors Mr Drake had caused LMIM to act in breach of trust and for an improper purpose (to increase the cash flow to a trust that was used to provide services to LMIM so as to gain an advantage for that other trust and himself) that was not in the best interests of LMIM. The developer had not previously been charged any loan re-establishment fee for previous increases. The receipt of the re-establishment fee would have a material impact on the profitability of LM Group. ASIC’s allegations were effectively that the decision to charge the fee was driven by a desire to ensure performance bonuses would be payable to staff from profits, which ASIC alleged would be used to fund Mr Drake’s lifestyle. Edelman J noted that the re-establishment fee would be added on to the loan amount, and therefore would not involve an additional cash flow from the developer to LMPF.ASIC also argued that the assets of LMPF would be increased as a result of the loan size increase and this would allow LM Group to earn higher management fees, which in turn funded Mr Drake’s living expenses. Edelman J noted that there was capacity for LMIM to increase its management fees (by increasing the %) independently of the size of assets under management.

The Court found that while LMIM “could have taken greater care and employed greater prudence”, “the test for a prudent person is not one of perfection, nor is it whether more prudence could have been taken than was exercised.” ASIC failed to establish that a different decision would necessarily have been made by LMIM if it had obtained an independent feasibility report.

There was also evidence that Mr Drake was being discouraged from drawing from LM Group to fund his living expenses, and that he had supported initiatives to reduce LMPF’s assets by expensing management fees rather than recording prepaid management fees as an asset.Therefore Edelman J was not satisfied that an improper purpose existed, nor was his Honour satisfied that Mr Drake’s decision to approve the increase to the loan would have been different if the circumstances ASIC relied on were not present.Edelman J ordered ASIC to pay the defendants’ costs.It is also worth noting that the LMIM internal compliance manager was able to demonstrate that Mr Drake had been excluded from decisions of the Credit Committee for LMPF due to a conflict of interest and, while Mr Drake had been present at a Credit Committee meeting and purported to vote, the compliance manager had minuted that his vote did not count. This assisted the trial judge’s assessment of her credibility as a witness.ASIC stated that they had no comment after the decision was handed down. See ASIC Media Release.Good record keeping and adequate minutes helped save the day for LMIM. A diligent compliance manager was able to demonstrate that Mr Drake had been excluded from decisions of the Credit Committee for LMPF due to a conflict of interest and, while Mr Drake had been present at a Credit Committee meeting and purported to vote, the compliance manager had minuted that his vote did not count. This evidence ultimately assisted the trial judge.

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NAB AND CBA ENTER INTO ENFORCEABLE UNDERTAKINGS AFTER ASIC INVESTIGATION SPOTS COMPLIANCE FAILURES IN THEIR FOREIGN EXCHANGE BUSINESSESOn 21 December ASIC announced that they had accepted an enforceable undertakings (EU) from each of National Australia Bank (NAB) and the Commonwealth Bank of Australia (CBA) relating to misconduct that occurred in their respective wholesale spot foreign exchange (FX) businesses between 2008 and 2013.In each case, ASIC found there had been inadequate systems, controls and supervision to prevent employees disclosing confidential information to others within the bank and to third parties, and from executing trades as a result of their knowledge of particular information and transactions.Each EU requires the relevant bank to:

� develop and implement a compliance program with the assistance of an independent consultant appointed by ASIC, to address the deficiencies detected in the ASIC investigation;

� for three years, provide attestations from its senior executives confirming that the bank’s spot FX business has appropriate systems and controls to prevent misconduct such as market manipulation, inappropriate trading using confidential information and disclosure of client confidential information; and

� make a $2.5 million “community benefit” payment to support financial literacy education in the aged care sector and promote ethical behaviour in Australian financial markets.

See ASIC Media Release.

Just as we thought the EU club was getting smaller, ASIC adds more participants to its growing EU club (that is, club of enforceable undertakings). ASIC found that each of NAB and CBA guilty of inadequate systems, controls and supervision to prevent employees disclosing confidential information to others within the bank and to third parties, and from executing trades as a result of their knowledge of particular information and transactions.

Some prime brokers have been caught off guard by ASIC’s decision to repeal class orders relating to holding clients assets. Prime brokers (including new entrants to the space) may now need to seek individual relief in their place.

ASIC ASK WHAT WE REALLY THINK – CONSULTATION PAPERS FOR THE DECEMBER QUARTER

PROPOSED REPEAL OF CLASS ORDERS ABOUT HOLDING CLIENT ASSETSOn 23 November ASIC released Consultation Paper 273 Repealing ASIC class orders on holding client assets, which proposes to repeal Class Order [CO 03/1111] Prime brokerage: Relief from holding scheme property separately, which is due to expire on 1 October 2017. This class order allows the RE of a registered scheme to appoint an authorised deposit-taking institution (ADI) as its agent to hold scheme property consisting of money on the RE’s behalf under a prime brokerage agreement. The ADI acting as prime broker is permitted to deposit money into an account with itself and use the funds in accordance with its ordinary banking business. REs who use prime brokers and rely on this class order will need to either seek individual relief from ASIC or restructure their arrangements if this class order is repealed.The Consultation Paper also proposes to repeal Class Order [CO 03/1110] Prime brokerage: Relief from holding client property on trust and Class Order [CO 03/1112] Relief from obligation to hold client money on trust.ASIC consider that the relief is not necessary and have expressed a preference to give relief on a case by case basis in the event that it is required. Consultation closed on 21 December and ASIC indicated that the repeal would occur in January or February 2017. See ASIC Media Release.ASIC’s assumption that these class orders were not being relied upon appears, in our view, to have been misplaced. We are aware of a number of prime brokers that currently rely on class order relief that ASIC is proposing to repeal.

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OTHER ASIC CONSULTATION PAPERSOther consultation papers issued during the December quarter included:

� a proposal to continue the following class order relief (due to expire between 1 October 2017 and April 2018) under a single replacement instrument:

> Class Order [CO 98/50] Incorporating parts of other compliance plans;

> Class Order [CO 98/60] Protecting class rights in a managed investment scheme;

> Class Order [CO 98/1806] Related bodies corporate and external members of compliance committee; and

> Class Order [CO 98/1808] Allowing constitutions to use Appendix 15A of the ASX Listing Rules.

Consultation closed on 25 November 2016. The replacement instrument is expected in the first calendar quarter of 2017. See ASIC Media Release;

� a proposal to remake Class Order [CO 07/422] On-market buy-backs by ASX-listed schemes (due to expire on 1 April 2018), with amendments which would ensure the relief covers ASX-listed schemes with multiple classes of units on issue and simplify the requirements where a discretion is exercised by the RE or its nominee.

This proposal also involves updating the guidance in Regulatory Guide 101 Managed investment scheme buy-backs. Consultation closed on 23 November. ASIC received no submissions in response and proceeded to issue the replacement relief in mid-December. See ASIC Media Release;

� a proposal to remake Class Order [CO 02/246] Offers of securities on the internet and Class Order [CO 02/641] Hawking: securities and managed investments, and revoke Class Order [CO 02/286] Obligation to provide a PDS: s1012B(4), which are all due to expire on 1 April 2017. Consultation closed on 7 December. See ASIC Media Release;

� a proposal to remake the following class orders in a single instrument without substantive change:

> in a single instrument - Class Order [CO 02/260] Product Disclosure Statements: Application forms created by licensee, Class Order [CO 02/262] Applications to switch managed investments products and Class Order [CO 07/10] Technical disclosure relief for reconstructions and capital reductions (paragraphs 4 and 8), which are all due to expire on 1 April 2017; and

> Class Order [CO 02/437] Eligible applications: Relief from s1016A for managed investment products, which is due to expire on 1 October 2017.

> ASIC are also proposing to combine ASIC Corporations (Options: Bonus Issues) Instrument 2016/77 and Class Order [CO 14/26] Personalised or Australian financial services licensee created application forms into that instrument so that all relief from the application form requirements is contained in a single instrument. We welcome this rationalisation!

> Consultation closed on 2 January 2017 and the replacement instrument will be made before 1 April 2017. See ASIC Media Release; and

� a proposal to repeal ASIC Class Order [CO 03/578] Financial Services Guide exemption for market-making services on a licensed market, which is due to expire on 1 April 2017. ASIC’s view is that market makers on licensed markets do not need to provide an FSG so the relief is not required. Consultation closes on 31 January 2017. See ASIC Media Release.

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ASIC REPORTS AND REPORTS

ASIC 2015-2016 ANNUAL REPORT RELEASEDThe ASIC Annual Report for the financial year ending 30 June 2016 was tabled in Parliament on 31 October 2016. Some interesting facts and figures for the financial year include:

� ASIC raised $876 million for the Commonwealth from fees and charges – a 6.4% increase;

� ASIC claim to have reduced ongoing annual business compliance costs by $309 million;

� ASIC’s operating expenditure increased by 4.8% - which has been attributed in part to spending associated with bank bill swap rate (BBSW) and FX Benchmark enforcement activities and the Wealth Management Project;

� members of the public made over 9,000 reports of misconduct to ASIC;

� ASIC conducted 1,441 “high-intensity” surveillances and 175 investigations;

� around 70% of ASIC’s resources were allocated to surveillance and enforcement;

� ASIC claimed a 100% success rate in criminal litigation cases completed and a 94% success rate in civil litigation cases completed;

� 67 fintech start-ups received informal assistance from the ASIC Innovation Hub;

� ASIC made 362 international cooperation requests to foreign regulators and received 398 requests from foreign regulators;

� visits to moneysmart.gov.au (which has over 700 webpages of consumer information) increased by 15%; and

� more than 50% of schools are now engaged in the MoneySmart Teaching financial literacy program.

Changes in store for ASIC over this financial year include:

� increased funding over a 4 year period to be applied to increase enforcement surveillance activities, improve data analytics capability and implement law reforms arising from the FSI;

� further implementation of ASIC Capability Review recommendations; and

� development of the industry funding model announced by the federal government in April 2016 (which we have discussed in detail elsewhere in this Quarterly Update).

Around 70% of ASIC’s current resources are allocated to surveillance and enforcement, so with a funding boost on its way we can safely assume ASIC is set to engage in more surveillance activities.

See ASIC Media Release.

THE AFTERMATH OF 19 SEPTEMBER The Australian Securities Exchange (ASX) market experienced an outage on 19 September 2016, which was attributed to a hardware failure in the ASX trading system, which adversely impacted market trading activity and confidence. ASIC conducted a review of the incident and released their report on 21 December.ASIC found that, while ASX had broadly adhered to its incident management processes, they made some recommendations for improvements that ASX and market participants could make in order to be better prepared for any future incident of a similar nature.For ASX, ASIC recommend a fairly comprehensive review of operational systems and processes, touching upon areas including market infrastructure, business continuity, disaster recovery, technology monitoring, communication and risk management.For market participants ASIC recommend a review of arrangements for managing market outages, including business continuity measures and functioning of trading execution activities (such as best execution policies, algorithms, order routing and crossings).See ASIC Media Release.

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MARKET INTEGRITY REPORT On 3 November ASIC released their Market Integrity Group’s twice-yearly report. ASIC Report 501 Market integrity report: January to August 2016 recaps on key activities including:

� commencement of civil penalty proceedings against ANZ, Westpac Banking Corporation (Westpac) and NAB alleging market manipulation and unconscionable conduct in setting BBSW over the 2010-2012 period;

� several successful prosecutions for insider trading, some of which resulted in prison sentences;

� actions taken against unlicensed retail over-the-counter (OTC) derivative issuers who were targeting Australian investors;

� surveillance activity on investment banks’ and other market participants’ management of confidential information and conflicts of interest across the research and corporate advisory functions;

� implementation of rules for central clearing of certain interest rate derivatives and transaction reporting for OTC derivatives as part of Australia’s Group of 20 (G20) commitments;

� the delegation of powers from the Minister for Revenue and Financial Services to ASIC for market and CS facility licensing, operating rules and compensation arrangements, which was done as an initiative for cutting red tape;

� review of Australian market cleanliness over a 10 year period;

� Markets Disciplinary Panel activity; and � enforcement outcomes (15), trading alerts

(22,874), enforceable undertakings (only one), market surveillance inquiries (103) and market participant compliance reviews (32).

The report also deals with regulatory priorities for 2016-2017, which we have outlined elsewhere in this Quarterly Update.The report consists of a short video and webpage, which ASIC encourage market intermediaries to share with their staff. See ASIC Media Release.

LICENSING ACTIVITY REPORTOn 7 December ASIC released its report on licensing activity for the January to June 2016 period. ASIC have been releasing these reports every 6 months but stated in the report that, from next year, they will only be releasing reports once every financial year. They will also be holding annual Licensing liaison meetings.For AFSL applications ASIC’s target is to decide 70% within 60 days and 90% within 120 days. ASIC did not meet these targets for the relevant period:

� within 60 days ASIC had only granted 52% of new AFSL applications and decided 62% of AFSL variation applications; and

� within 120 days ASIC had only granted 82% of new AFSL applications and 79% of AFSL variation applications.

Elsewhere in the report ASIC state that they had 1,902 AFSL applications (for new AFSLs and variations) under consideration in the 6 month period, and only approved 31% of them (with 82% of those approved having conditions altered from the original application). This is, unfortunately, consistent with our experience. ASIC have attributed the failure to hit their targets to a combination of complexity, resourcing challenges and the spike in limited AFSL applications by accountants giving advice to self-managed superannuation funds (SMSFs) in the lead-up to the transition period expiry on 30 June 2016. The report states that ASIC are reviewing their service charter “in terms of sustainable target levels with current resources”. We do not anticipate any significant improvement in service levels in the short term.We note that one of the problem areas ASIC identified over the 6 month period was REs who were putting the cart before the horse – applying for scheme registration or to take over as RE of an existing registered scheme before obtaining the relevant AFSL authorisation from ASIC. ASIC have warned that, before any application for scheme registration or notification of a change in RE form is lodged, the relevant AFSL application must be lodged and sufficient time must be allowed for ASIC to consider the merits. At paragraph 44 of the report ASIC have stated:

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“We are unable to prioritise a licence application merely because there is a pending scheme registration application or a Form 5107 has been lodged. Appropriately managing the licence application process will help to limit any unnecessary delays, costs and reputational damage.” Point taken!Some of the other key problem areas ASIC identified over the 6 month period included:

� licensees offering OTC derivative and FX products to retail clients – ASIC found a high degree of non-compliance;

� false or misleading information being provided in support of licence applications (including non-disclosure of planned change in ownership or business activities and proposed responsible managers giving incorrect responses in their statements of personal information); and

� accountants waiting until the last minute to make their limited AFSL application (to be authorised to provide limited financial services with respect to SMSFs) – which placed a significant strain on ASIC’s already tight resources.

Other activities that occupied ASIC’s Licensing resources over the 6 month period included:

� the update to the managed discretionary account (MDA) class order and regulatory guide;

� encouraging greater innovation in the financial services industry through:

> assistance to fintech start-up businesses through the Innovation Hub;

> agreements with offshore regulators; > release of the “regulatory sandbox” AFSL

exemption proposal in June 2016 (which was implemented in December, which is discussed in more detail elsewhere within this Quarterly Update); and

> consultation followed by regulatory guidance about digital advice;

� licensing and monitoring new market entrants in the marketplace lending (also referred to as peer-to-peer lending) sector; and

� reviewing and considering refinements to the AFSL application assessment process and associated regulatory guidance.

The report also covers licence applications for ACLs, financial markets licences, clearing and settlement facility licences and derivative trade repository licences and registration applications for liquidators and auditors.See ASIC Media Release.

ASIC stamps its feet over REs applying for scheme registration or taking over as RE of an existing registered scheme before obtaining the relevant AFSL authorisation from ASIC. ASIC warn that, before any application for scheme registration or notification of a change in RE form is lodged, the relevant AFSL application must be lodged and sufficient time must be allowed for ASIC to consider the merits.

OTHER ASIC ACTIVITY

RELIEF FOR LUXEMBOURG REGULATED FUND MANAGERS SERVICING WHOLESALE CLIENTS IN AUSTRALIAFrom 16 November ASIC class order relief is available under ASIC Corporations Instrument (CSSF-Regulated Financial Services Providers) 2016/1109 to certain Luxembourg regulated fund managers who hold a current licence or authorisation granted by Luxembourg’s financial service regulator, the Commission de Surveillance du Secteur Financier (CSSF) and only provide financial services in Australia to wholesale clients.Entities eligible for the relief are:

� management companies, which can manage undertakings for collective investment in transferable securities (UCITS) established under Part I of the Law dated 17 December 2010 relating to the undertaking for collective investment of Luxembourg (2010 Law) that come under Chapter 15 of the 2010 Law; and

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� investment companies established under Part I of the 2010 Law that have designated themselves as “self-managed”.

The terms of relief are consistent with class order relief that ASIC have already given for financial service providers regulated by certain regulators in the UK, the US, Singapore, Hong Kong and Germany. Like those other class orders, the relief in this instrument will cease to operate from 28 September 2018. ASIC are currently reviewing their policy for giving relief to foreign financial service providers and will announce their final position prior to the end of 2018.See ASIC Media Release.

Although the class order relief that exempts certain foreign financial service providers who are subject to regulation by the UK, the US, Singapore, Hong Kong and Germany regulators from the requirement to hold an AFSL is currently under review, ASIC have allowed fund managers regulated by Luxembourg’s financial service regulator – the Commission de Surveillance du Secteur Financier – to join the elite club.

OPT-IN RELIEF FOR FPA CODE SUBSCRIBERSASIC have given relief exempting members of the Financial Planning Association (FPA) who subscribe to the FPA Professional Ongoing Fees Code (FPA Code) from compliance with the “opt-in requirement”. The “opt-in requirement” applies to financial service licensees and their authorised representatives who are receiving ongoing fees for providing personal financial product advice to retail clients, and requires the client to be given written notice every two years under which the client must effectively renew their consent to the payment of the fee.Financial advisers who rely on this relief will still be required to renew ongoing fee arrangements but they will have the flexibility to agree a longer renewal period of up to 3 years with their clients. FPA members who do not comply with the FPA Code could be subject to sanctions, including the inability to continue to rely on the ASIC relief.

This is the first time ASIC have exercised their power under section 1101A of the Corporations Act to approve an industry code of conduct.See ASIC Media Release.

The FPA becomes the first industry body to have a code of conduct approved by ASIC as an “industry code of conduct”.

UPDATED PROSPECTUS DISCLOSURE GUIDANCEOn 3 November ASIC released an updated Regulatory Guide 228 Prospectuses: Effective disclosure for retail investors (RG 228), following consultation in the first half of the year. RG 228 provides guidance on how to meet the requirement for prospectus disclosure to be “clear, concise and effective” and how to address specific prospectus content requirements in section 710 of the Corporations Act. The matters dealt with in the update include:

� business acquisitions and asset acquisitions – in line with some major foreign jurisdictions, ASIC now expect companies to disclose audited historical financial information on acquisitions of businesses within the preceding 12 months which are “significant” (representing more than 25% of the company’s annual revenue, annual income, total assets or total equity);

� audit and review opinions; � whether historical financial information is

required; � when historical financial information should be

updated; and � when cash flow information should be

disclosed.At least some of the RG 228 content will be relevant to issuers of PDSs. See ASIC Media Release.

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31 DECEMBER FINANCIAL REPORTSOn 8 December ASIC communicated its expectations for financial reports prepared for the period ending 31 December 2016.Areas of focus are likely to include:

� for AFSL holders – testing whether client money requirements have been met;

� asset values – particularly the appropriateness of the assumptions underpinning impairment calculations and fair value figures;

� accounting policy choices – including those relating to off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, tax accounting, inventory pricing and rebates;

� material disclosures – ASIC encourage clear communication and discourage immaterial disclosure;

� role of directors – while they may not be accounting experts, they need to be in a position to apply some rigour and question anything that does not make sense or reflect their understanding; and

� the enhanced audit reports that listed entities will need to prepare for financial years ending on or after 15 December 2016.

ASIC will apply a combination of risk-based criteria and random selection to choose which financial reports it will conduct surveillance on. See ASIC Media Release.

ASIC tells AFSL holders that financial reports prepared for the period ending 31 December 2016 must address (among other things) whether client money requirements have been met.

OTHER REGULATORS

AUSTRAC2015-2016 Annual Report releasedAUSTRAC’s annual report for the financial year ending 30 June 2016 was tabled in Parliament on 17 October. Key highlights included:

� AUSTRAC’s involvement in the Serious Financial Crime Taskforce response to the Panama Papers;

� hosting the inaugural Counter-Terrorism Financing Summit (held here in Sydney);

� greater international co-operation with foreign counterpart regulators;

� receiving over 78,000 suspicious matter and suspect transaction reports from reporting entities;

� contributing to nearly 4,000 Australian Taxation Office cases that drew $152 million in income tax assessments; and

� contributing to nearly 300 Department of Human Services cases that saved $8.3 million associated with welfare fraud.

See AUSTRAC Media Release.

AML/CTF risk assessment of the superannuation sectorOn 31 October the Minister for Justice announced that AUSTRAC had published a money laundering and terrorism financing risk assessment of the Australian superannuation sector. The assessment noted that the following types of incidents had impacted superannuation funds:

� fraud (the number one contributor); � cybercrime (a growing threat); � falsifying of documents; � attempts to illegally access superannuation

savings early; � potential tax evasion; � unusual account activity; � unusually large transfers; � unauthorised account transactions; and � to a limited (but growing) extent, use of

superannuation accounts to finance terrorism activities.

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AUSTRAC assessed the overall level of risk in the superannuation sector as “medium” and will monitor how superannuation funds respond to the assessment, with a focus on those that appear to rank behind their peers in compliance. AUSTRAC are expecting a greater volume of suspicious matter reports going forward.

See the Minister’s Media Release.

Australia’s superannuation sector and financial planning sector are both rated “medium” risk from an AML/CTF perspective. While launderers and terrorist financiers need to be patient in superannuation, cyber threats are on the rise in the financial planning sector.

AML/CTF risk assessment of the financial planning sectorOn 21 December the Minister for Justice announced AUSTRAC’s risk assessment of the financial planning sector, which was also given a “medium” rating. Cyber-enabled threat is the most frequently reported offence, which is perceived as growing in scale and sophistication. The financial planning industry may also be impacted by scams, use of false documents and suspected fraud by financial planners. Tax evasion and welfare fraud are less common. AUSTRAC wish to make the industry more aware of money laundering and terrorism risks so that they can become more proactive in reporting suspicious matters and add to the intelligence used by AUSTRAC and other agencies to combat financial crime.

See the Minister’s Media Release.

International cooperationOn 2 November AUSTRAC announced that a formal memorandum of understanding (MOU) between AUSTRAC and its Chinese counterpart, the China Anti-Money Laundering Monitoring and Analysis Centre (CAMLAC), had been signed after a long negotiation period.

The CAMLAC MOU will allow each respective regulator greater access to financial intelligence data that can be used to detect and prevent illegal money flows under a framework that is designed to provide transparency and accountability around the use of data. The two regulators will initially exchange high value transaction reports that show a link between China and Australia, with the potential for future joint taskforces and projects down the track.

See AUSTRAC Media Release.

On 24 November the Minister for Justice announced that an MOU had been signed between AUSTRAC and its counterparty in Jordan to facilitate the exchange of financial intelligence between the two regulators. This MOU is regarded as a key advancement towards improving measures to combat the financing of terrorism activities in the Middle East, which is a high priority for the federal government.

See the Minister’s Media Release.

On 15 December it was announced that AUSTRAC had been appointed as Chair of the International Supervisors Forum (ISF), which consists of AUSTRAC and its US, UK, Canadian and New Zealand counterparts. The ISF seeks to enhance cross-border regulatory cooperation to manage transnational threats.

See AUSTRAC Media Release.

If we needed more evidence that China is attempting to crack down on monies illegally leaving its shores for Australian investments, AUSTRAC and the China Anti-Money Laundering Monitoring and Analysis Centre have now agreed to share data to detect and prevent illegal money flows.

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Deregulation of anti-money laundering legislationOn 15 November the Minister for Justice announced that an estimated $28 million would be saved annually as a result of changes AUSTRAC had made to the AML/CTF Rules which:

� allow more flexibility in collection of customer identity information, which saves customers time in completing application forms; and

� increase the threshold for donating shares to charitable organisations without needing to comply with customer identification obligations from $500 to $10,000.

See Minister’s Media Release.

On 30 November AUSTRAC released an explanatory note for consultation seeking stakeholder views on:

� restructuring the compilation of the Anti-Money Laundering and Counter-Terrorism Financing Rules to make them more user-friendly; and

� making changes to those rules to implement deregulatory recommendations. More specific consultation on each item will take place once the initial feedback has been received.

Consultation closed on 28 December. See AUSTRAC Media Release.

COUNCIL OF FINANCIAL REGULATORSClearing and settlement of cash equitiesOn 12 October the Treasurer announced government support for policy statements released by the Council of Financial Regulators (CFR) relating to the regulation of Australian cash equities clearing and settlement services. The CFR is chaired by the Reserve Bank of Australia and includes representatives of ASIC, Treasury and the Australian Prudential Regulation Authority (APRA).

The policy statements: � communicate regulatory expectations about

how ASX operates its cash equity clearing and settlement service until it faces competition for these activities; and

� propose law reform measures which would: > impose ownership restrictions on ASX that

would be consistent with those for other financial sector companies (such as banks and insurance companies); and

> impose a set of minimum conditions for cash equity clearing that would need to be met by an applicant for a clearing facility licence.

The policy statements follow the CFR’s Review of Competition in Clearing Australian Cash Equities conducted earlier in 2016. ASX is expected to respond with a public commitment to meet the regulatory expectations by updating the ASX Cash Equities Clearing and Settlement Code of Practice.

See the Treasurer’s Media Release.

ASX is expected to respond to the CFR’s latest recommendations by updating the ASX Cash Equities Clearing and Settlement Code of Practice.

ASXAdmission requirements for listed entities updatedFollowing extensive consultation earlier in 2016, on 2 November the ASX announced changes to its admission requirements for listed entities, which came into effect on 19 December. Certain ASX Listing Rules and Guidance Notes have been updated to reflect the changes to:

� the profit test (increased from $400,000 in a 12 month period to $500,000);

� the net tangible asset (NTA) test (increased from $3 million to $4 million);

� the market capitalisation test (increased from $10 million to $15 million);

� introduce a minimum 20% free float requirement;

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� the spread requirement (at least 300 security holders each holding at least $2,000 of securities);

� for the assets test – introduce a new requirement to provide 2 full financial years of audited accounts for the entity seeking admission to listing and any entity or business it is to acquire ahead of listing; and

� for the assets test – a standardised $1.5 million working capital requirement.

See ASX Response to Consultation.

APRARelevant APRA activities in the December quarter included:

� release of an information paper on current risk culture practices across the banking, insurance and superannuation businesses, which confirms that this will continue to be a point of focus going forward (see APRA Information Paper); and

� release of the final Prudential Standard for margining and risk mitigation for non-centrally cleared derivatives, which will be introduced from 1 March 2017, which affects all APRA-regulated entities except private health insurers (see APRA announcements).

RECENT LAW REFORM

UNFAIR CONTRACT LAWS NOW PROTECTING SMALL BUSINESS12 November marked the commencement date for amendments to the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) that extend the operation of the unfair contract terms provisions (Subdivision BA of Division 2 of Part 2 of the ASIC Act) to cover “small business contracts”, in addition to “consumer contracts”, for a financial product or the supply or possible supply of financial services. There is corresponding legislation administered by the Australian Competition and Consumer Commission relating to contracts other than those for the supply of financial products or financial services.

Financial services businesses may have customers who are treated as a small business and, depending on the number of employees that the relevant legal entity has, they may themselves be treated as a small business for this purpose.Where a contract is:

� entered into on or after 12 November 2016 – the laws apply to all terms;

� varied on or after 12 November 2016 – the laws apply to the varied terms;

� expiring and automatically renewed or rolled over on or after 12 November – the laws apply to all terms from the renewal or rollover date; and

� periodically rolled over (e.g. month to month) – the laws apply from the first period beginning on or after 12 November 2016.

A “small business contract” has the following features:

� at the time the contract is entered into, at least one party to the contract is a business that employs less than 20 people (including casual staff employed on a regular or systematic basis) – note that this is different to the “small business” test for retail vs wholesale clients in Chapter 7 of the Corporations Act; and

� either: > the up-front price payable under the

contract is $300,000 or less; or > where the contract has a duration of less

than 12 months, the upfront price payable under the contract does not exceed $1 million.

The relevant legislation applies to “standard form contracts” and a contract is presumed to be a standard form contract unless proven otherwise. Ordinarily a “standard form contract” is prepared by one party and presented to the other party without the opportunity for negotiation. Constitutions of registered schemes and insurance contracts have been excluded from the operation of the legislation.

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Where a term in a small business contract that is a standard form contract is “unfair”, that term is void. If the rest of the contract can operate without the inclusion of the unfair term, it will continue to bind the parties.A term is “unfair” if all of the following apply:

� it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;

� it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and

� it would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

Certain types of terms have been excluded from the unfair prohibition – those that set the upfront price payable, those that define the main subject of the contract and those that are required or expressly permitted by statute.The legislation gives the court certain powers where a term is found to be unfair, including making declarations, varying contractual terms, refusing to enforce unfair terms and directing a party to refund money, return property or provide services at their own expense to the affected small business.ASIC have the power to make an application to the court to have a term declared unfair, but will generally only do so if it is in the public interest.More information can be found in the ASIC Information Sheet.

Financial services businesses may have customers who are treated as a small business and, depending on the number of employees that the relevant legal entity has, they may themselves be treated as a small business for this purpose. Although constitutions of registered schemes and insurance contracts have been excluded from the operation of the legislation, other “standard form contracts” (i.e. a contract prepared by one party and presented to the other party without the opportunity for negotiation) may be caught by the unfair contract laws.

Certain wholesale clients can agree with licensees how to deal with client money or property that is to be used to facilitate trade in non-centrally cleared derivatives (e.g. to meet margining requirements) in a manner other than as contemplated by the client money and client property requirements under Part 7.8 of the Corporations Act.

CLIENT MONEY REQUIREMENTS FOR MARGINING OF NON-CENTRALLY CLEARED DERIVATIVES FOR WHOLESALE CLIENTS AMENDEDPart 7.8 of the Corporations Regulations 2001 (Cth) has been amended by the Financial Services Legislation Amendment (Wholesale Margining) Regulation 2016 (Cth). New regulation 7.8.01A modifies the application of the client money requirements that apply to Australian financial services licensees. It allows certain wholesale clients to make an agreement with the licensee about how to deal with client money or property that is to be used to facilitate trade in non-centrally cleared derivatives (e.g. to meet margining requirements). The licensee may then deal with the client money or property in accordance with that agreement rather than the client money and client property requirements under Part 7.8 of the Corporations Act that would otherwise apply.This amendment follows:

� proposed reforms canvassed in a policy paper released on 22 December 2015;

� consultation on proposed law reform between 22 December 2015 and 25 March 2016; and

� exposure draft legislation released on 29 February 2016,

relating to proposed reform to client money requirements for OTC derivatives.

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WATCH THIS SPACE – COMING SOON

ASIC ACTIVITYIn 2017 we can expect ASIC’s key areas of focus to include:

� cyber resilience – there will be further “health checks” and more guidance on areas for improvement;

� culture – ASIC’s risk based surveillances will include additional “cultural indicators”, which include attitudes towards conduct risk, remuneration structure, how confidential information and conflicts of interest are managed and the effectiveness of supervisory and risk management frameworks;

� how sell-side research and corporate advisory divisions manage confidential information and conflicts of interest;

� handling of client money; � capital requirements; � product distribution (particularly for complex

products like retail OTC derivatives); � continuation of the Wealth Management Project

(which shines the spotlight on the financial advice businesses of AMP, ANZ, CBA, NAB and Westpac) – with more cases of customer compensation and enforcement action;

� implementing regulatory changes to facilitate Australia’s participation in the Asia Region Funds Passport; and

� following the September 2016 ASX market outage and ASIC’s review of that incident:

> a wider review of the ASX Group operational and technological risk management arrangements; and

> consultation on new market integrity rules relating to technological and operational performance of market operators.

LAW REFORM INITIATIVESCollective investment vehicle (CIV) non-resident withholding taxesOne of the federal budget initiatives for the current financial year was to introduce legislation amending the tax laws to facilitate the use of corporations and limited liability partnership as fund investment vehicles, with a view to making the Australian funds management industry more attractive to offshore investors. On 3 November the Minister for Revenue and Financial Services announced the issue of a consultation paper which seeks feedback on a number of different options for taxing foreign residents’ income from CIVs:

� Proposal A: no new withholding tax concessions for non-residents;

� Proposal B: a single 5% non-resident withholding tax rate for Australian CIVs and managed investment trusts (MITs) in the Asian Region Funds Passport (ARFP) regime, with no change to existing arrangements for CIVs and MITs outside the ARFP – this was advocated by the Financial Services Council; and

� Proposal C: a single 5% non-resident withholding tax rate for Australian CIVs and MITs (irrespective of the ARFP status)

The intended commencement date for corporate CIVs is 1 July 2017 and the intended commencement date for limited partnership CIVs is 1 July 2018.

Consultation closed on 2 December. See the Minister’s Media Release.

With the intended commencement date for corporate CIVs being 1 July 2017 and the intended commencement date for limited partnership CIVs being 1 July 2018, the Minister for Revenue and Financial Services sought feedback on a number of different options for taxing foreign residents’ income from CIVs. Consultation closed on 2 December. Expect a response very soon if the target commencement dates are to be met.

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Anti-money launderingBack in April, the Report on the Statutory Review of the AML/CTF Act and Associated Rules and Regulations was tabled in Parliament by the Minister for Justice. In October the Attorney-General’s Department released the Draft AML/CTF Project Plan, which provides a “road map” for industry consultation on the 84 recommendations set out in the Report. The draft Project Plan divided the initiatives into:

� Phase 1 – which have been prioritised for completion in 2017. This includes regulation of digital wallets and e-currencies under the AML/CTF regime; and

� Phase 2 – which will be developed in stages over the 2016-2019 period and include significant reforms.

Consultation on the draft Project Plan closed on 11 November.

The Attorney-General’s Department are currently undertaking industry consultation on the following matters:

� Phase 1 legislative amendments (excluding the digital currency initiatives), which cover amendments to the existing regime as it applies to reporting entities;

� regulation of digital currencies; and � proposed models for the regulation of:

> accountants; > high-value dealers; > legal practitioners and conveyancers; > real estate professionals; and > trust and company service providers.

Consultation closes on 31 January 2017.

Mandatory professional standards for financial advisersOn 16 October the Minister for Revenue and Financial Services announced legislation to bring in mandatory professional standards for financial advisers. Following this announcement, the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 (Cth) was introduced into Parliament on 23 November. These reforms are intended to improve the standard of behaviour in the financial advice industry and reduce the incidence of inappropriate advice that causes harm to clients.

If the Bill is passed, the changes would take effect from 1 January 2019 and key measures include:

� compulsory education requirements (with a 5 year transition period for advisers who are already in the industry);

� supervision of new advisers; � an industry code of ethics; � an industry-wide benchmark exam (with a

2 year transition period for advisers who are already in the industry); and

� ongoing professional development.

The proposed professional standards are to be overseen by a government-appointed independent standards body, with the establishment costs to be funded entirely by AMP and the large Australian banks.

See the Minister’s Media Release.

AMP and the large Australian banks are to entirely fund the set up of an “independent standards body” that will oversee proposed professional standards for financial advisers.

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Financial benchmark manipulation prevention measuresOn 6 October the Treasurer announced that regulation of financial benchmarks such as BBSW will be strengthened, following CFR recommendations, including the following measures:

� a new requirement for administrators of systemically important benchmarks to hold a “benchmark administration” licence issued by ASIC;

� new rule-making powers for ASIC governing administrators of significant benchmarks; and

� new specific criminal and civil offences for financial benchmark manipulation.

The reforms are to be introduced over an 18 month period. See Treasurer’s Media Release. Meanwhile ASIC’s pursuit of several major Australian banks for BBSW manipulation over the 2010-2012 period will continue in 2017.

Client money requirements for OTC derivativesOn 8 November the Minister for Revenue and Financial Services announced that, following extensive consultation on draft legislation, the federal government would proceed with reforms intended to give retail investors in OTC derivatives products greater protection in the event of a licensee’s insolvency. The amendments form part of the Treasury Laws Amendment (2016 Measures No. 1) Bill 2016 (Cth), which was introduced into Parliament on 1 December.The reforms will remove an exception from the requirement to hold client money on trust that applies to retail OTC derivatives, and will ensure that funds belonging to retail clients who hold OTC derivatives cannot be applied for other purposes such as working capital. These reforms will bring Australia into line with a number of other G20 countries and give retail clients greater protection in the event of a licensee’s insolvency.ASIC will also be given the power to introduce specific rules for client money reporting and reconciliation. The reforms will allow for a 12 month transition period for licensees to make the necessary changes to their systems and practices so that they can meet the new requirements.

See the Minister’s Media Release (8 November) and the Minister’s Media Release (1 December).

Retail OTC derivative issuers will be required to hold client money on trust to (among other things) ensure that such monies cannot be applied for other purposes such as working capital.

SuperannuationOn 14 October the Treasurer and the Minister for Revenue and Financial Services announced the release of exposure draft legislation for the third tranche of superannuation reforms that were announced in the 2016-2017 federal budget.

The third tranche reforms include measures relating to the annual non-concessional contributions cap, which would reduce it to $100,000 and limit access to individuals whose superannuation balance was below $1.6 million. Other amendments seek to simplify administrative arrangements and increase consistency for individuals and superannuation providers.

Consultation was short and sweet, closing on 21 October. See the Joint Media Release (14 October).

On 23 November the Treasurer and the Minister made a further joint announcement that the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (Cth) and Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 (Cth) had been passed by Parliament. The relevant changes will take effect from 1 July 2017, subject to some transitional concessions.

The Superannuation (Objective) Bill 2016 (Cth) is currently before the Economics Legislative Committee, which is due to report on 14 February 2017.

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See the Joint Media Release (23 November) and link to Treasury superannuation reform webpage.

It doesn’t end there. On 15 December the Minister for Revenue and Financial Services announced the release of a discussion paper seeking feedback on implementing a recommendation of the FSI report to introduce a framework for comprehensive retirement income products to better serve the needs of consumers in the retirement phase. The discussion paper proposes to use the label “MyRetirement” for such products.

Consultation closes on 28 April 2017. See Minister’s Media Release.

Crowd funding legislation The Corporations (Crowd-sourced Funding) Bill 2016 (Cth) was first tabled in Parliament in December 2015, but lapsed in May 2016 upon the double dissolution. On 24 November the Treasurer announced that the Bill had been reintroduced into the House of Representatives.

The Bill seeks to establish a regulatory framework for crowd-sourced funding (CSF) in Australia to assist small and start-up businesses to gain access to capital. Initially only unlisted public companies with assets and annual turnover of less than $25 million will be able to access the framework. Key features include:

� up to $5 million can be raised without issuing a prospectus in any 12 month period;

� tailored disclosure requirements that must be addressed in the offer document;

� investment limit of $10,000 per 12 month period for retail investors;

� requirement for CSF intermediaries to hold an AFSL and meet specific obligations; and

� exemptions from some of the corporate governance and reporting requirements that otherwise apply to public companies for a 5 year period.

There will be further consultation in 2017 on whether to extend the CSF regime to proprietary companies.

See Treasurer’s Media Release.

REVIEW AND INQUIRIES

REVIEW OF THE BIG 4 BANKS The House of Representatives Standing Committee on Economics held the first of what will be at least annual public hearings for Australia’s largest four banks (Westpac, NAB, CBA and ANZ) in October 2016. On 24 November the Committee tabled a report in Parliament setting out 10 recommendations for reform of the banking sector.Although the Terms of Reference of the Committee focus on the banking sector, the report includes some recommendations that would impact all AFSL holders.The most alarming recommendation made by the Committee is to introduce a requirement, by 1 July 2017, for AFSL holders to publicly report significant breaches of AFSL obligations within five business days of making a report to ASIC or of ASIC identifying the breach, setting out:

� details of the breach and how it occurred; � what will be done to prevent the breach from

recurring; � the names of senior executives who are

responsible for the team/s in which the breach occurred; and

� impact on the senior executives of the breach and, if their services were not terminated, why not!

The Committee also recommend that ASIC be given greater intervention powers to collect data about internal dispute resolution (IDR) schemes from AFSL holders so that ASIC can:

� identify licensees that are not complying with IDR scheme requirements and take appropriate action;

� determine whether to change the IDR scheme requirements; and

� respond to all alleged breaches of IDR scheme requirements and notify complainants what action was taken and, if none was taken, why that was appropriate.

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Another item the Committee has added to ASIC’s 2017 “to do” list is a recommendation to establish, by the end of 2017, a public reporting regime on the wealth management industry to provide detail, at an industry and individual service provider level, on:

� overall quality of the advice industry; � misconduct in the provision of financial advice

by licensees, authorised representatives or employees (naming the offending parties); and

� consequences for representatives who have engaged in misconduct in providing financial services advice, and consequences for the relevant licensee.

As has been the case with some of the previous inquiries, we expect ASIC’s response to identify the ways in which they are already doing several of the things the Committee has recommended.The balance of the report concentrates its focus on the banking sector and includes recommendations to:

� by 1 July 2017, establish a new industry funded Banking and Financial Services Tribunal to replace the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT);

� by 1 July 2018, create a data sharing framework for consumer and small business data (so that consumers can make more informed choices when deciding which bank to use);

� establish a dedicated function to monitor competition in the banking sector;

� consider whether additional account switching tools are required to improve competition;

� by the end of 2017, review regulatory barriers to entry with a view to increasing competition in the banking sector; and

� require the big 4 banks to commission independent reviews of their risk management framework, with the review to be done by 1 July 2017 and recommendations to have been implemented by 31 December 2017 (which seems to assume that this will be possible).

The Committee intends to hold the next public hearings with the banks in the first quarter of 2017.

The House of Representatives Standing Committee has recommended that by 1 July 2017, AFSL holders must publicly report significant breaches of AFSL obligations within five business days of making a report to ASIC or of ASIC identifying the breach, setting out:� details of the breach and how it

occurred;� what will be done to prevent the

breach from recurring;� the names of senior executives who

are responsible for the team/s in which the breach occurred; and

� impact on the senior executives of the breach and, if their services were not terminated, why not!

We are not convinced this will aid ASIC’s objectives of promoting open, prompt and transparent breach reporting to ASIC.

ASIC ENFORCEMENT REVIEW TASKFORCEOn 19 October the Minister for Revenue and Financial Services announced the terms of reference and membership of the ASIC Enforcement Review Taskforce. The Taskforce will examine the adequacy of ASIC’s enforcement regime, including whether existing penalties are appropriate, the effectiveness of existing enforcement mechanisms and whether ASIC’s current powers are sufficient.Taskforce members include representatives from Treasury, ASIC, the Attorney-General’s department and the Commonwealth Director of Public Prosecutions. They will be assisted by a panel of experts consisting of lawyers and academics with relevant industry experience, and may also seek input from other stakeholders such as other domestic and foreign regulators.The Taskforce is due to report to the federal government in 2017. See Minister’s Media Release.

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EXPERT PANEL RELEASES INTERIM REPORT ON DISPUTE RESOLUTION FRAMEWORKOn 6 December the Minister for Revenue and Financial Services announced the release of an Interim Report by the independent expert panel, chaired by Professor Ian Ramsay, which was appointed to review the financial services dispute resolution framework.The Interim Report, over 200 pages in length, sets out some draft recommendations for a package of reforms to improve on the existing arrangements. Key recommendations include:

� combining the CIO and FOS into a single ombudsman scheme for all financial, credit and investment disputes;

� converting the SCT into an industry ombudsman scheme for superannuation disputes, which may be combined with the financial, credit and investment disputes ombudsman scheme in the longer term (as the House of Representative Standing Committee on Economics has recommended);

� increases to existing monetary limits and compensation caps, which would give small businesses better access to the schemes;

� increasing ASIC’s powers to provide enhanced accountability and oversight of both ombudsman schemes; and

� a requirement for licensees to publicly report their internal dispute resolution outcomes (complaints handling), with the reporting requirements to be set by ASIC.

The panel’s Terms of Reference also included the potential establishment of an additional statutory dispute resolution body. Most submissions received in the consultation process to date were against this and the panel have taken the view it is not necessary.Further work is to be done on the proposal to introduce an industry-funded compensation scheme of last report, which the panel support in principle.Public comment is invited on the draft recommendations made in the Interim Report. Consultation closes on 27 January 2017, with a final report due by the end of March 2017. See Minister’s Media Release.

Expert panel recommends combining the CIO and FOS into a single ombudsman scheme for all financial, credit and investment disputes as well as a requirement for licensees to publicly report their internal dispute resolution outcomes (complaints handling), with the reporting requirements to be set by ASIC.

WHISTLE BLOWER PROTECTION REVIEWOn 20 December the Minister for Revenue and Financial Services announced the release of a consultation paper titled ‘Review of tax and corporate whistle blower protections in Australia’. The consultation paper relates to commitments made by the federal government to:

� introduce new arrangements under the tax legislation to better protect whistle blowers reporting tax related misconduct; and

� as part of the Open Government National Action Plan, ensure appropriate protections are in place for people who report corruption, fraud, tax evasion or avoidance and misconduct in the corporate sector.

The consultation paper expresses a view that Australian tax and corporate sector whistleblowing provisions lag behind those operating in the Australian public sector and comparable overseas jurisdictions. It proposes specific amendments to the tax laws to protect whistle blowers and canvasses a number of options to improve on existing corporate sector protections for whistle blowers.Consultation closes on 10 February 2017. The feedback received in this consultation process will be taken into account by the current Parliamentary Inquiry into whistle blower protections in the corporate, public and non-for-profit sectors, which is due to report by 30 June 2017.See the Minister’s Media Release.

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UPDATE ON ASIC INSTRUMENTSThis summary is provided for the benefit of lawyers and compliance officers among our readers who are updating compliance plans, policies and procedures for changes to ASIC instruments. Under the Legislation Act 2003 (Cth), ASIC instruments automatically sunset 10 years after they are registered unless ASIC takes steps to continue their operation. A significant number of instruments were due to sunset in 2016 and 2017, so ASIC has been reviewing instruments and considering whether they should be remade so that their operation continues or revoked, having regard to its current policy.

Instrument Instruments impacted Effect Related documents

ASIC Corporations (Disclosure of Directors’ Interests) Instrument 2016/881

� Class Order [CO 01/1519] Disclosure of directors’ interests

� Remade � Some previous relief

conditions have been removed

� Consultation Paper 262 Remaking and repealing ASIC class orders on markets and securities

ASIC Corporations (Transfers of Division 3 Securities) Instrument 2016/893

� Class Order [CO 02/313] Part 7.11: Transfers of securities under Division 3

� Remade � As above

ASIC Corporations (Exchange-Traded Warrants) Instrument 2016/886

� Class Order [CO 02/608] Warrants: Relief from PDS requirements for secondary sales

� Class Order [CO 03/957] ASX managed investment warrants: Disclosure and reporting exemptions

� Two separate class orders remade and consolidated into a single instrument

� As above

ASIC Corporations (Low Volume Financial Markets) Instrument 2016/888

� Corporations (Low Volume Financial Markets) Exemption Notice 2003

� Remade � The transaction threshold

has been increased and the transaction period to which the transaction threshold applies has been amended

� As above

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ASIC Corporations (Records: Dealings on Foreign Markets) Instrument 2016/889

� Class Order [CO 03/826] Market related records: Australian financial service licensees dealing on overseas markets

� Remade � As above

ASIC Corporations (Amendment and Repeal) Instrument 2016/895

� Class Order [CO 03/911] Licensing relief for self-dealers who provide general product advice about own securities

� Remade � As above

ASIC Corporations (Exchange-Traded Derivatives: Multiple Issuers) Instrument 2016/883

� Class Order [CO 06/682] Multiple derivative issuers

� Remade � As above

ASIC Corporations (Securities: NZ FASTER System) Instrument 2016/891

� Class Order [CO 07/183] Transfer of Australian securities traded in New Zealand

� Remade � As above

ASIC Corporations (Dematerialised Securities: Austraclear) Instrument 2016/841

� Class Order [CO 02/281] Dematerialised securities traded on Austraclear

� Remade � Consultation Paper 236 Remaking ASIC class orders on dematerialised securities and CHESS units of foreign securities

N/A � Class Order [CO 02/284] CHESS-approved foreign securities

� Repealed � ASIC considers relief is no

longer necessary

� Consultation Paper 262 Remaking and repealing ASIC class orders on markets and securities

N/A � Class Order [CO 00/2449] ASX Online—relief from paper lodgement

� Repealed � ASIC considers relief is no

longer necessary

� Consultation Paper 236 Remaking ASIC class orders on dematerialised securities and CHESS units of foreign securities

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N/A � Class Order [CO 02/1296] ASX managed investment warrants—FSR Act transition

� Repealed � ASIC considers relief is no

longer necessary

� As above

ASIC Corporations (Renounceable Rights Issue Notifications) Instrument 2016/993ASIC Corporations (Repeal) Instrument 2016/1005

� Class Order [CO 02/225] Rights issue notifications

� Remade without substantive change

� Consultation Paper 261 Remaking and repealing ASIC class orders on rights issue notifications and money market deposits

ASIC Corporations (Repeal) Instrument 2016/994

� Class Order [CO 00/231] Money market deposits

� Repealed � ASIC considered class

order relief unnecessary. Any residual need for relief is to be assessed on a case by case basis.

� As above

ASIC Corporations (Amendment) Instrument 2016/1006

� Class Order [CO 14/923] Record-keeping obligations for Australian financial services licensees when giving personal advice

� Amendments made to: > clarify that licensees

must have access to records for the period of time they are required to keep them, even if they are not held by the licensee itself; and

> explicitly require authorised representatives who provide advice to keep records and give them to the authorising licensee on request

� ASIC Consultation Paper 247 Client review and remediation programs and update to record-keeping requirements

� Report 500 Response to submissions on CP 247 Client review and remediation programs and update to record-keeping requirements

ASIC Corporations (Top-up Product Disclosure Statements Relief) Instrument 2016/1054

� Class Order [CO 02/1072] Product Disclosure Statements: Top-up relief for managed investment schemes

� Remade without substantive change

� ASIC Corporations (Repeal) Instrument 2016/1053

� Consultation Paper 255 Remaking ASIC class orders on financial services disclosure requirements

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ASIC Corporations (Updated Product Disclosure Statements) Instrument 2016/1055

� Class Order [CO 03/237] Updated information in Product Disclosure Statements

� Remade without substantive change

� As above

ASIC Corporations (Joint Product Disclosure Statements) Instrument 2016/1056

� Class Order [CO 03/1092] Further relief for joint Product Disclosure Statements

� Remade without substantive change

� As above

ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109

� N/A � New instrument with effect until 28 September 2018

� ASIC Regulatory Guide 176 Foreign financial service providers

ASIC Corporations (Amendment) Instrument 2016/1224

� Class Order [CO 14/1252] Technical modifications to Schedule 10 of the Corporations Regulations

� Extends until 30 September 2017 the transition period to comply with updated fee disclosure requirements

� Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements

� ASIC Media Release 16-412 ASIC extends the transition period for superannuation trustees and responsible entities to comply with updated fee and cost disclosure requirements

� ASIC Media Release 16-450 ASIC publishes form for superannuation trustees and responsible entities to provide ASIC information on updated fee and cost disclosure requirements

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ASIC Credit (Repeal) Instrument 2016/1067

� Class Order [CO 13/818] Certain small amount credit contracts

� Repealed with effect from 1 February 2017

� ASIC Media Release 16-376 Consumers will no longer be charged direct debit fees for payday loans

ASIC Corporations (Managed Investment Schemes: Interests not for money) Instrument 2016/1107

� Class Order [CO 02/210] Interests in film and theatrical ventures

� Class Order [CO 02/211] Managed investment schemes – interests not for money

� Class Order [CO 02/236] Film investment schemes

� Repealed and replaced with a single instrument without fundamental changes

� ASIC Corporations (Repeal) Instrument 2016/1108

� Regulatory Guide 80 Managed investment schemes: Interests not for money

� Consultation Paper 266 Remaking ASIC class orders on managed investment schemes: Not for money

� Report 505 Response to submissions on Consultation Paper 266

ASIC Corporations (Nominee and Custody Services) Instrument 2016/1156

� Class Order [CO 02/295]

� Repealed and replaced with a new instrument reflecting some changes to ASIC policy

� ASIC Corporations (Repeal) Instrument 2016/1157

� Regulatory Guide 148 Platforms that are managed investment schemes and nominee and custody services

� Consultation Paper 264 Remaking ASIC class order on nominee and custody services and proposed changes to platforms policy

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ASIC Corporations (Amendment) Instrument 2016/1158

� Class Order [CO 13/763] Investor directed portfolio services

� Class Order [CO 13/762] Investor directed portfolio services provided through a registered managed investment scheme

� Updated to reflect some changes to ASIC policy

� As above

ASIC Corporations (ASX-listed Schemes On-market Buy-backs) Instrument 2016/1159

� Class Order [CO 07/422] On-market buy-backs by ASX-listed schemes

� Repealed and replaced � ASIC Corporations (Repeal) Instrument 2016/1209

� Regulatory Guide 101 Managed investment scheme buy-backs

� Consultation Paper 269 Remaking ASIC class order on managed investment scheme buy-backs and updating related guidance

ASIC Corporations (Amendment Instrument 2016/1090)

� ASIC Corporations (Generic Calculators) Instrument 2016/207

� Commencement of requirement to account for inflation postponed from 1 April 2017 to 1 July 2018 for superannuation and retirement calculators

� ASIC Media Release 16-446 ASIC extends the transition period for superannuation and retirement calculators

ASIC Corporations (Amendment) Instrument 2016/1212

� Class Order [CO 13/1621] Exemption and declaration for operation of mFund

� Amends instrument to expand relief to registered managed investment schemes generally (previously only simple managed investment schemes)

� Report 381 Response to submissions on CP 208 ASX Managed Funds Service: Relief from the application form requirement

� Consultation Paper 208 ASX Managed Funds Service: Relief from the application form requirement

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ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175

� Allows an eligible fintech business to operate a financial services business without an AFSL for up to 12 months, subject to conditions

� Regulatory Guide 257 Testing fintech products and services without holding an AFS or credit licence

� Consultation Paper 260 Further measures to facilitate innovation in financial services and submissions

� Report 508 Response to CP 260 on facilitating financial innovation

ASIC Superannuation (Amendment) Instrument 2016/1232

� Defers the operation of section 29QC of the Superannuation (Industry) Supervision Act 1993 (Cth) until 1 January 2019

� ASIC Media Release 16-447 ASIC defers the superannuation consistency requirements until 2019

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