A summary of regulatory requirements for statements of advice

A summary of regulatory requirements for statements of advice

Financial Services

As noted in our previous article, a statement of advice is the main document that records advice provided to retail clients.

The advice process

Individuals obtain information about financial products in a variety of ways and in a variety of settings. An individual may talk to friends and family, their lawyer, their accountant and others who they trust when considering a financial product.

Where advice is sought from a financial advisor, a financial services guide (FSG) will typically be provided to a client in the first meeting between the client and advisor. A statement of advice (SoA) will then either set out the advice or record the advice that was given. If the statement of advice is not itself the means by which advice is provided, then it must be provided to the client when the advice is provided or as soon as practicable thereafter.

If the statement of advice is not given to the client when the advice is provided, the licensee or representative must inform the clients of information which would be required to be included in the statement of advice including a disclosure of remuneration or other benefits that the providing entity and its associates will receive in connection with the advice, and must disclose interests which may affect the recommendations within the advice.

Regulatory Guides

There are a number of Regulatory Guides and reports that have been published by ASIC and which assist advisors in understanding their obligations. These include:

  • Regulatory Guide 90: Example Statement of Advice: Scaled advice for a new client (RG 90).
  • Regulatory Guide 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) (RG 168).
  • Regulatory Guide 175 Licensing: Financial product advisers— Conduct and disclosure (RG 175).
  • Regulatory Guide 221 Facilitating digital financial services disclosures (RG 221).
  • Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244).
  • Report 413 Review of retail life insurance advice (REP 413).

Mandatory inclusions

The statements and information in a statement of advice must be worded and presented in a clear, concise and effective manner (see s947B(6) and 947C(6) and RG 175). ASIC recognises that “the style, content, layout and length of an SoA will vary depending on various matters, including the scope and complexity of the advice.”

Section 947B of the Corporations Act 2001 sets out the required content of a statement of advice provided by an advisor. The statement of advice must include the following:

  • A statement setting out the advice (see s947B(2)(a) and 947C(2)(a));
  • Information about the basis on which the advice is or was given. This information should include an explanation of the basis on which the advice is or was given including consideration of the clients objectives, financial situation and needs and how the advice will meet those objectives, financial situation and needs (see s947B(2)(b) and 947C(2)(b));
  • A statement setting out the name and contact details of the advisor (see s947B(2)(c) and 947C(2)(c)–(d));
  • Information about remuneration, including commissions or other benefits, that the advisor, a related body corporate, a director or employee of the advisor or any related body corporate or associate will receive that might reasonably be expected to be or have been capable of influencing the advisor in providing the advice (see s947B(2)(d) and 947C(2)(e));
  • Information about any other interests, whether pecuniary or not and whether direct or indirect, of the advisor including any associate, that might reasonably be expected to be or have been capable of influencing the advisor in providing the advice (see s947B(2)(e) and 947C(2)(f));
  • A statement setting out any warnings required to be given to the client in relation to the advice pursuant to section 961H; and
  • All other information required to be provided under the regulations. Regulation 7.7.11 provides that a statement of advice given by a financial services licensee must include information about all remuneration, including commission and other benefits, that a person has received or is to receive from referring another person to the licensee.

Disclosures on fees and commissions

The obligations relating to the disclosure of information on commissions, fees, benefits or other advantages provided to an advisor or an advisor’s associate aim to help consumers identify any potential influences on the advice provided and to identify any potential conflicts of interests.

In terms of how a disclosure may be made, preference is given to an advisor stating a dollar amount received, otherwise a percentage amount or a written description must be provided, and the benefits disclosed must include all commissions, soft dollar remuneration, sales quota and volume bonuses. A financial services provider would generally not need to disclose holdings of shares in a company whose shares are recommended to an investor unless the advice provided is likely to result in a significant volume of trading in those particular shares. If there is some form of collateral benefit, i.e. an advisor or associate is a lender to the corporation in which securities are recommended, disclosure is likely to be required.

An advisor must include a reasonable level of detail in their recommendations and also in relation to the disclosure of interests that may affect the advice given.

Recommending one product to replace another

Where an advisor recommends that a client disposes of a particular product to replace it with another, additional obligations apply.

Section 947D(1) requires that a statement of advice include information as to the charges a client will or may incur with respect to that disposal, reduction, acquisition or increase, along with any pecuniary or other benefits that the client will or may lose as a result of acting on the recommendation, to the extent that the information is known or could reasonably found out by the advisor.

An introduction to Financial Product Advice

An introduction to Financial Product Advice

Financial Services

Financial advice is regulated under the Corporations Act 2001 (Cth) as financial product advice. The provision of financial product advice is a financial service and a financial planner or adviser must hold an Australian Financial Services Licence (AFS Licence) or operate under an exemption to this licensing requirement.

Financial advisors and AFS Licence holders are subject to general licensing obligations including relating to conduct and disclosure as well as additional obligations for financial advisers who provide financial product advice to retail clients.

In this post, we introduce the types of advice given, the topics typically covered by advice and the regulatory framework.

Types of financial product advice

Under the Corporations Act there are two types of financial product advice. These are:

  • personal advice which is defined as financial product advice that is given or directed to a person in circumstances where the provider of the advice has considered one or more of the person’s financial objectives, situation and needs, or a reasonable person might expect the provider to have considered one or more of these matters. Personal advice can also be further classified as either scaled advice meaning personal advice is limited in scope, relating to a specific issue or specific range of issues raised by a client or comprehensive advice providing holistic or full advice covering a client’s financial needs.
  • general advice which is financial product advice that is not personal advice. General advice covers guidance, advertising, promotional and sales material highlighting the potential financial benefits of a product.

Financial product advice generally involves a qualitative judgement, evaluation, assessment, or comparison of the features of a financial product.

Main topics covered by financial advice

The main areas covered by financial advice include the following:

  • Superannuation and retirement advice: referring to advice that seeks to help individuals plan for their retirement.
  • Loan and investment advice: advice related to the determination of the most suitable loan product and financial asset allocation for a consumer.
  • Self-managed superannuation fund advice: typically concerning advice provided to support the investment and administration’s decision is made by the trustee.
  • Tax advice: relating to financial product advice liabilities, obligations and entitlements that could arise under a taxation law.

Legal and regulatory framework

There are a number of sources of regulatory obligations for AFS licensees and their representatives. These include:

  • General common law duty of care: the adviser may be subject to an implied duty of care and can be liable in negligence.
  • Contractual: where advice is provided pursuant to a contract there will be contractual duties and an advisor may be liable for a breach of contract where it fails to abide by the terms of the contract.
  • Fiduciary duties: fiduciary duties will apply where the relationship between the parties is fiduciary in nature. Fiduciary duties include the no conflicts and no profit rules.
  • AFS licensing requirements: the AFS Licence will include a number of obligations on the licensee.
  • Corporations Act 2001 (Cth): there are various obligations in the Corporations Act 2001 (Cth) including s 912A that need to be considered. There are also obligations in relation to a licensee’s dispute resolution system and mandatory disclosures.
  • Australian Security and Investments Commission Act 2001 (Cth): including prohibitions against unfair contract terms, unconscionable conduct, misleading or deceptive conduct, and containing implied warranties.

In our next post, we will consider mandatory inclusions of a statement of advice.

 

A deeper look at the AFS licence application process

A deeper look at the AFS licence application process

Financial Services

As we noted in our previous article there are five parts to form FS01. Below we describe these in more detail.

Part A of the application requires you to provide details of the applicant as well as details of the person who will serve as a contact for the applicant during the application process. In part A you will also be asked questions about the financial services and products you would like to be authorised to provide and how your proposed business will operate. ASIC makes various references to the Corporations Act 2001. As noted in our previous article, applicants should ensure that they understand the applicable provisions of the Corporations Act and understand the controls that they will implement to ensure compliance.

Who can apply for an AFS licence

An applicant for an AFS licence can be an individual, partnership, company, trustee of a trust, or other entity. If you are applying for a company, the names and details of your directors and secretaries will be pre-filled by the online application form. If you are applying as an ‘other’ type of entity, you may be asked to provide more information in an A1 additional proof. We will explain the proofs that are required to accompany an application in an article to follow. An AFS licence cannot be held by the trust but can be held by a trustee.

The applicants’ contact person will be contacted by ASIC with any questions about the application lodged. The contact person can be the applicant, one of the applicant’s officers or employees or another person such as a lawyer or accountant.

Financial Service and Product selection

At Part A3 and A4 you will be asked to select the financial services and products that you want to be authorised to provide and your AFS licence. ASIC notes that this is one of the most important steps in the application process. The implications of a selection include that it will limit the financial services and products that can be provided under the licence and that it will determine the obligations you have as an AFS licensee. The proofs that you are required to provide include those that demonstrate that you have the competence, resources and processes in place to be able to provide the services and products that you have selected.

The financial services that you may select include those listed below:

  • provide financial product advice;
  • deal in a financial product;
  • make a market for a financial product;
  • operate a registered scheme;
  • provide a custodial or depository service;
  • provide traditional trustee company services;
  • provide a crowdfunding service.

Financial product advice may either be:

personal advice as defined in section 766B(3) of the Corporations Act 2001. You will generally be considered to be giving personal advice if you have considered, or a reasonable person might expect you to have considered, one or more of the client’s objectives, financial situations and needs; general advice as defined in section 766B(4) of the Corporations Act 2001. This covers all financial product advice that is not personal advice.

Class of product advice as defined in regs 7.6.01BA(3), 7.6.04BA(3), 7.8.12A(2), and 7.8.14B(3). This includes financial product advice about a class of products that does not include a recommendation about a specific product in the class.

In our next article, we will examine these terms in more detail.

Steps to obtain an AFS Licence

Steps to obtain an AFS Licence

Financial Services

Regulatory guides are published by ASIC to give guidance to regulated entities by explaining when and how ASIC will exercise specific powers, to explain how ASIC will interpret the law, to describe principles underlying ASIC’s approach, and to give practical guidance describing the steps of a process such as applying for a licence.

Financial Services

Regulatory guide one gives practical guidance to applicants for an Australian financial services licence (AFS licence). An AFS licence authorises you and your representatives to provide financial services to clients. Without an AFS licence, you generally can’t carry on a financial services business.

Financial services are provided if you:

  • provide financial product advice;
  • deal in a financial product;
  • make a market for a financial product;
  • operator registered scheme;
  • provide a custodial or depository service;
  • provide traditional trustee company services; or
  • provided crowdfunding service.

Main considerations in AFS Licence applications

ASIC assesses applications for AFS licences as part of its role as the regulator of the financial services industry. ASIC considers whether an applicant is competent to carry on the kind of financial services covered by the license, has sufficient financial resources to carry on the business that is proposed, has an adequate risk management system in place, and can meet other obligations under the AFS licence.

The application process

An applicant for an AFS licence must complete an application consisting of form FSO1 and supporting core proof documents. Before beginning work on an application, an applicant must understand the business and understand which financial services and products are proposed to be provided and must understand the obligations of an AFS licensee and have appropriate systems and processes in place.

As part of the application process, an applicant must choose the authorisations that it requires as detailed in part two of the AFS Licensing Kit. The choice must be based on the authorisations that will be required, not on those that may be required at some point in the future. If an AFS licence holders’ business changes, it must vary its license at that point in time.

The application form itself is found online and as an applicant completes the online form, it will tailor itself so that only those questions relevant to the applicant are shown. In order to get access to the online form, an applicant will need to register for the elicensing system.

There are five parts to the online application and these are:

  • Part A where you enter your details as the applicant and the details of a contact person. Here you will also select the financial services and products that you want to be authorised to provide an answer questions that give a description of your business.
  • Part B where you will be asked questions that relate to the obligations you will have as an AFS licensee and your ability to comply with them.
  • Part C which will display where complex financial services or products have been selected in Part A. Part C will include more detailed questions about those services.
  • Part D which will include declarations and certifications based on your answers in Parts A and B.
  • Part E which will include the core proof documents to send as part of the application.

Once you’ve completed the form you can print a draft of it for checking. It is a criminal offence to make a false or misleading statement in the application. The system will calculate the relevant fee to be paid.

When you submit the form, you must immediately send ASIC:

  • a scanned and signed print out of the form and copies of the proof documents; and
  • a cheque by post if you haven’t already paid the application fee by BPAY.

There is no set time line for approval of an AFS licence. The length of time that an AFS licence takes to be approved will depend upon the completeness of the original application including the description of the applicant’s business and how quickly the applicant responds to requests for information from ASIC.

Corporations Act 2001 requirements

AFS licence holders are required to comply with a range of obligations under the Corporations Act. Importantly, these include obligations under section 912A and section 912B. In understanding and complying with these obligations, prospective licensees should develop an obligations register which sets out all of the applicable obligations and specifies controls for each.

Proof documents

As part of an application for an AFS licence, an applicant will need to provide proof documents. The number and type of proof documents will depend on the complexity of the financial services and products that are proposed to be offered.

The four core proof documents you will need to include in your application include:

  • A5 business description;
  • People Proofs for each responsible manager;
  • B1 organisational competence including a table of organisational competence and if relevant submission on the responsible managers’ competence; and
  • B5 financial statements and financial resources unless you’re regulated by APRA.

In our next article, we will consider the contents of proof documents in further details alongside the obligations of an AFS licensee.

Webinar – Two New Codes for Banking and Lending

Consumer, Financial Services

In our recent webinar focusing on the finance industry, regulatory specialist Dr Drew Donnelly consider two new codes for banking and lending. This year has seen the finalisation of two distinct codes covering lending and banking businesses in Australia: The Banking Code of Conduct 2019 (Banking Code) and the Code of Lending Practice: AFIA Online Small Business Lenders (Lending Code).

This webinar forms part of our series looking at the role of fintech, financial services, and the regulatory and compliance environments that surround them. If you would like to know more about our work supporting companies in the fintech and financial services sector, please contact us by clicking here.

Below you can view a full transcription of the webinar along with the video.

Recent Developments in Banking & Fintech

  • Open Banking Reforms / Consumer Data Right
  • Fintech Lending Code
  • Banking Code
  • Extension of Fintech Sandbox
  • Royal Commission Interim Report

Independent Review:

Code of Banking Practice

The Code of Banking Practice (the Code) sets standards of good banking practice.
The original Code took effect on 1 November 1996. It was most recently reviewed in 2008 with amendments taking effect on 1 February 2014.
Takes into account both consultation and other reviews and reports.

Identified that:

  • A code is valuable
  • Lack of coverage for small business who need better information and enhanced protections with respect to credit
  • There is a need for better coverage for customers in financial difficulty
  • Improved Code Monitoring required.

New Banking Code of Conduct

  • The existing Banking Code of Conduct (2013 Code) updated for 2019 in line with outcomes of Independent Review.
  • Feedback from public and industry indicated the continued need for a code which exists over and above legal and regulatory obligations.
  • In contrast with 2013 Code, will be compulsory for all banks that are members of the ABA by July 2019

Key Changes – Part One

> Upfront principles governing the banking industry.
> A requirement for ‘plain English’ contracts.
> Increased transparency around fees and valuations.
> Restrictions on unsolicited credit card limit increase offers.
> Elevation into an ‘industry code’ approved by ASIC.

Key Changes – Part Two

> Increased assistance to vulnerable customers.
> Simplified small business loan contracts.
> New cooling off periods.
> Clarified role for compliance committee.
> All members of ABA to sign up by July 2019.

FinTech Lending Code

> Report recommending new code for Fintech small business lenders.
> New Code established. As of June, several have signed up.
> Voluntary for members of the Australian Finance Industry Association.
> From high-level principles to detailed duties.
> Emphasis on protection for vulnerable customers and clarity.

Specific Obligations

Disclosure and Pricing Comparison

> Full disclosure of cost and fees for disclosure and pricing comparison documents.

Communication and Dispute Resolution

> All communications to be in plain language.
> Before accepting a loan offer, customers will receive a summary document.
> Internal and external dispute resolution (including CCC)

Privacy

> Affirmation of obligations under the Privacy Act, Credit Reporting regulation and a requirement to have a Privacy Policy.

Advertising

> Advertising and other information about Lona Products must be clear, concise and accurate, be written in plain language; and (c) use terms from the Lending Code.

Key Differences between the two Codes

> The Banking Code applies to all banking services which includes bank accounts and term deposits, all lending, credit cards, payment services and foreign currency exchange. The Lending Code, by contrast, only applies to online lenders who loan to small business.

> The Banking Codes is compulsory, for members of the ABA while the Lending Code is voluntary for members of the AFIA.

> The Lending Code provides for a full external dispute resolution service, whereas the Banking Code expects this to be carried out by existing dispute resolution bodies (such as the financial services ombudsman).

Implications for Compliance Programs

> Consider interaction with legal and regulatory obligations, including Corporations Act 2001, AML/CTF Act, Privacy Act, Banking Act.
> Review disclosure and contractual terms and conditions.
> Review advertising and marketing.
> Staff Training.
> Incentive Structures.

If you have any questions or want further information or assistance please contact us at [email protected] OR [email protected]

Unfair Contract Terms

Unfair Contract Terms

Financial Services

In March 2018, the Australian Securities and Investment Commission (ASIC) published REP 565 (found here: https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-565-unfair-contract-terms-and-small-business-loans/), which outlines changes to small business loan contracts made by the big four banks to comply with the unfair contract term law. This report also provides guidance to the broader small business lending industry.

On Friday, ASIC announced that Prospa Advance Pty Ltd (Prospa) had changed the terms of its small business loan contract to address potential non-compliance with the unfair contract terms provisions of the ASIC Act.

Changes agreed

Prospa agreed to make the following changes:

  1. to the early repayment clause so that borrowers are able to repay the loan early without Prospa’s consent. Further, removing Prospa’s absolute discretion whether or not to provide a discount for prepayment.
  2. to the unilateral variation clause to significantly reduce Prospa’s ability to unilaterally vary contracts.
  3. to clauses defining events of default to add remediation periods and materiality thresholds and to permit changes of control of the borrower with the lender’s consent (not to be unreasonably withheld).
  4. Removal of a broad cross-default clause which allowed Prospa to call a default under the loan due to any default under any other finance document related to the loan.
  5. Restricting borrower’s indemnity to ensure that does not apply to 3rd parties and reducing its scope so that it does not apply to losses or costs incurred due to the fraud, negligence or wilful misconduct of Prospa.
  6. Removing an entire agreement clause which purported to absolve Prospa from contractual responsibility for conduct, statements, or representations made to the borrower about the loan.

Lessons

ASIC’s enforcement action an agreement with Prospa provides lessons for all businesses that have standard form contracts that are covered by prohibitions on unfair contract terms. Unilateral variation clauses are a typical concern, as are widely drafted indemnities.

The removal of the entire agreement clause was noteworthy in that, even though Australian Consumer Law is likely to apply to many contracts despite an entire agreement clause, in ASIC’s view such a clause may be contrary to the prohibition on unfair contract terms.

All businesses with standard form contracts should ensure that their contract terms comply with Australian Consumer Law, and where applicable, the ASIC Act.

New ASIC Guidance for the Fund Management Industry – Push on Compliance

Financial Services

The Australian Securities & Investments Commission (ASIC) has just released a batch of guidance for fund management in Australia.[1] In today’s update we offer a quick breakdown of the seven guidance documents. The seven guidance documents square the existing regulatory framework under the Corporations Act 2001 with the new ‘Asia Region Funds Passport’.[2] This is a multilaterally agreed framework for the cross-border marketing of managed funds across the Asia Region.

Our take — compliance is everything. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry demonstrated that in spite of massive institutional compliance departments, and huge spends, a ‘compliance culture’ is non-existent in some businesses. [3] With deliberate attempts of senior management in some businesses to hide wrongdoing from ASIC it is fair to say that a ‘non-compliance culture’ exists.

By Dr Drew Donnelly, Compliance Quarter.

The Regulatory Guides

Seven guides were released in total. We briefly summarise each one:

  • RG 131 Funds management: Establishing and registering a fund sets out the requirements for (a) registering as a managed investment scheme and (b) registering as a passport fund;
  • RG 132 Funds management: Compliance and oversight sets out the key compliance obligations of managed investment schemes. This includes the requirement to have a compliance management system and risk management program, designed in light of the applicable Australian Standards. It has a particular emphasis on oversight and governance of the compliance program within the organisation, including systematic audit of compliance programs;
  • RG 133 Funds management and custodial services: Holding assets sets out the requirements for asset custodial arrangements. It focuses on businesses that have arrangements with third parties to hold assets, having compliance controls in place and ensuring funds have the appropriate legal set-up (usually a trust);
  • RG 134 Funds management: Constitutions gives guidance on constitutions for those who run managed investment schemes (‘responsible entities’) and passport fund operators;
  • RG 136 Funds management: Discretionary powers sets out ASIC’s approach to granting individual relief from Corporations Act 2001 requirements, and where relevant, the Australian Passport Rules;
  • RG 137 Constitution requirements for schemes registered before 1 October 2013;
  • RG 138 Foreign passport funds establishes the requirements for foreign passport fund operators seeking to enter, or operating in, Australia under the Asia Region Funds Passport scheme.

Comment

There is ongoing frustration from regulators with organisations that take a ‘set and forget’ approach to compliance. It is not enough to simply establish good policies and expect compliance. We are seeing this dissatisfaction across the board, not just in banking and financial services, but also in energy retail, utilities and property management. Organisations need to demonstrate an ongoing commitment through:

  • integration of compliance management throughout the organisation’s functions (i.e. don’t just leave it to the compliance lead and their team);
  • continuous improvement of organisational policies (e.g. ensuring that customer complaints immediately/quickly inform policy updates)
  • Robust governance arrangements (e.g. regular Board involvement);
  • Regular audit and breach reporting (e.g. consider automated processes).

If you think we could be of assistance in supporting your financial services compliance through our automated compliance hub, document review or bespoke compliance management programs, please get in touch.

[1] See https://asic.gov.au/about-asic/media-centre/find-a-media-release/2018-releases/18-222mr-asic-updates-guidance-for-funds-management-industry/.

[2] For more information see http://fundspassport.apec.org/

[3] For more, see https://www.compliancequarter.com.au/three-financial-services-compliance-lessons-from-the-royal-commission/.

How do I work out my compliance spend?

AU Energy Compliance, Financial Services, NZ Energy Compliance

In the just released final report of the Australian Competition & Consumer Commission (ACCC) retail electricity pricing inquiry[1], energy retailers identified the rising cost of regulatory compliance as a major concern.[2] Furthermore, rising compliance costs are not just a challenge for the energy sector.

In 2014 Deloitte estimated that the total cost of compliance for Australian businesses was $250 billion every year.[3] This raises the question; what kinds of things must I consider when calculating my compliance spend as an energy business in Australia?

By Dr Drew Donnelly, Compliance Quarter.

Compliance Costs in General

Unfortunately, there are no publicised benchmarks for compliance spend for individual energy businesses. This is likely because, in part, compliance spend is often not captured by a distinct line in the budget. Even when a business does set aside distinct funds for compliance, due to the integration of compliance activities within a business, this will often not capture the total spend.

While there are no benchmarks per se, there is some interesting international survey data available which aggregates the amounts that organisations claim to spend. The Deloitte/Compliance Week 2016 Compliance Trends Survey was a worldwide survey with over 700 respondents across a range of industries (around 8 per cent from the energy sector). 59% of respondents reported having a total annual compliance budget of less than $5 million, while a third of respondents got by on less than $500,000. 60 per cent of respondents expected their compliance budget to increase over the next year.[4]

The Society of Corporate Compliance and Ethics Benchmarking Guidance Survey: June 2016 analysed responses of 647 compliance professionals, that survey found:

  • For organisations with revenues up to $15 million, 50 % spent less than 100,000 on their compliance budgets;
  • For organisation with revenues of a billion or more, around 12 per cent spent 100,000 or less, with 42% spending a million or more. [5]

One problem with this general survey data is that, as some sectors, including energy and financial services, are much more heavily regulated than others, their compliance costs are likely to be higher than aggregated figures.

Determining Compliance Spend for Energy Businesses

While there is no benchmarking data available for energy businesses in Australia, what we can identify are some of the matters that you should take into account when calculating compliance spend for yourself. Some key considerations are:

  • Integration of compliance. Under the Australian Standard AS ISO 19600: 2015, compliance should be embedded into the operations of the business. In practical terms, this means that the organisation needs to put compliance on the agenda at all levels of the business, including at executive management and governance levels. It is not possible to ‘hive off’ compliance completely to a distinct compliance unit. Insuring integrated compliance could end up being cheaper for the business in the long-run;
  • Use of RegTech, LegalTech, ComplianceTech. Automating aspects of your compliance program can significantly reduce the time and money spent on compliance and can focus your efforts on those areas where you can add value;
  • Prohibitions on passing on costs to customers. Some compliance costs such as the cost of appointing an Embedded Network Manager in an embedded network, cannot be passed onto customers.[6] Energy businesses will need to consider which costs they can pass on before determining their compliance spend.

If you would like some advice on your compliance program, including how you can utilise our compliance technology offerings for a more efficient compliance spend, please get in touch.

 

[1] See https://www.compliancequarter.com.au/accc-blueprint-to-reduce-energy-prices/ for more information.

[2] See Retail Electricity Pricing Inquiry—Final Report, p296.

[3] See https://www2.deloitte.com/au/en/pages/media-releases/articles/rules-eat-up-250-billion-a-year-271014.html.

[4] See https://www2.deloitte.com/us/en/pages/regulatory/articles/compliance-trends-report.html.

[5] See http://www.corporatecompliance.org/Portals/1/PDF/Resources/Surveys/scce-2016-benchmarking-guidance-survey-report.pdf?ver=2016-06-15-075138-863.

[6] See https://www.aer.gov.au/networks-pipelines/network-exemptions/embedded-network-managers/.

Consumer data right – speech by Rod Sims Chairman of the ACCC

AU Energy Compliance, Financial Services

The Australian Competition and Consumer Commission (ACCC) Chair Rod Sims has delivered a speech to the National Consumer Data Policy Research Centre on the consumer data right (CDR) and the digital platforms inquiry (DPI). The CDR will be rolled out first in the banking industry followed by the energy and telecommunications industries.

Photo by jesse orrico on Unsplash

By Anne Wardell, Regulatory Specialist, Compliance Quarter.

Consumer data right (CDR)

The consumer data right (CDR) was introduced by the government in November 2017. Following the Open Banking Review, the Treasurer announced that banking would be the first sector to which the CDR would apply. At the same time as the Final Report was released, the government released the Consumer Data Right Booklet. The Booklet contains the following useful summary:

The ACCC will have the lead role in overseeing the implementation of the CDR. The CDR will allow consumers to ‘safely share data, including transaction and product data, with trusted service providers, if they choose to do so’. Rod Sims states that it is important to understand what CDR is and what it is not. It is not ‘intended to be the one stop shop for regulation and control of consumer data. Privacy rules and frameworks will continue to be the primary tools to address current and emerging privacy issues’.  Consumers will not be forced to share their data, but rather it can only occur with the consumer’s express consent.

‘Open Banking is also not Open Data. Open Banking will be a defined system whereby data holders will share specified data with trusted users, at the customer’s request, with the customer’s consent, and in accordance with uses the customer has specified.  In contrast, Open Data is data that is freely available to everyone to access, use and republish as they wish, without restrictions (for example, the Australian Government makes thousands of datasets freely available to the public for download at data.gov.au)’.

The first phase will commence on 1 July 2019 and will involve all major banks making data available on credit and debit card, deposit and transaction accounts on that day and on mortgages by 1 February 2020. Data on all remaining products recommended by the Open Banking Review will be available on 1 July 2020. All remaining banks will have a 12-month-delay in which to implement Open Banking. This means that Open Data is unlikely to be introduced in to the energy and telecommunications sectors before 2021. Although the government may decide to implement it earlier if the early adoption is successful.

The ACCC will have multiple roles as the regulator of the CDR including:

  • rule making;
  • accreditation of third party data receivers;
  • enforcement; and
  • consumer education.

The ACCC has created a dedicated Consumer Data Right Branch and it is proposed to publish a framework paper for public consultation in August 2018.

Digital Platforms Inquiry (DPI)

The ACCC has been investigating digital platforms since 4 December 2017 when a request for an inquiry was made to it by the government. The inquiry is in relation to the effect that digital search engines, social media platforms and other digital content aggregation platforms have on competition in media and advertising services markets.

‘The DPI covers a broad range of issues:

  • the impact of digital platforms on choice and quality
  • the extent to which the digital platforms are exercising market power in their dealings with media content creators and advertisers
  • the extent to which the DPs may benefit from an unfair competitive advantage due to the unequal treatment of regulation
  • and finally, the implications for consumers: are users of digital platforms adequately informed about the personal data collected and how it is being used?’

As part of the inquiry the ACCC released an issues paper and received a number of submissions. A copy of the issues paper and the submissions are available here.

In his speech, Rod Sims considered the impact of digital platforms on consumers and how these platforms collect and use data of individuals.

‘We are due to provide a preliminary report of our findings to the Treasurer by 3 December 2018, followed by a Final Report in June 2019.

There are a number of different outcomes that may eventuate, and part of what is exciting about this Inquiry is that we don’t yet know what our recommendations are likely to be.

Outcomes could be:

  • Increased transparency. The Inquiry is already generating increased awareness about some of the ways digital platforms monetise information they collect about consumers, and will ultimately provide greater transparency around these practices.
  • Recommendations to Government. The Inquiry may result in the ACCC making findings about relevant structural, competitive or behavioural issues relevant to digital platforms, and make practical recommendations for change to industry and government.
  • Enforcement action. If the Inquiry identifies any behaviour that is causing consumer detriment and raises concerns under the Competition and Consumer Act 2010, the ACCC will also take action to address that behaviour’.

Mr Sims was of the view that an important part of the ACCC role in relation to both CDR and DPI is the ‘need to examine and ensure consumers benefit from the competitive provision of services and are adequately informed of, and agree to, the way in which their data is used and can be utilised to further their own interests’.

A copy of the full speech is available on the ASIC website here.