Financial Services Blog – June 2014

Misleading Claims

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ASIC has taken action against seven companies for misleading claims this year, with penalties totalling more than $140,000.

Just last month, Australian Mutual Holdings Limited (AMH) became the latest company to pay the penalty (literally) after ASIC issued two infringement notices for misleading statements in Product Disclosure Statements (PDS) for two AMH managed funds. The combined penalties totalled $20,400.

ASIC was concerned that until October 2013, the PDS’ contained misleading statements by claiming that the majority of the funds’ assets were held by the funds’ custodian when, in fact, the majority of the assets were held in an AMH trading account with the funds’ prime broker.

The penalties may not seem particularly high, but as the list of ASIC enforcement actions this year continues to grow, it is clear that right now, misleading advertising is an area of ongoing regulator focus.

Promotional material should always be subject to regular review, as should any relevant industry and regulator guidance. ASIC Regulatory Guide 234 is a good example of the latter and contains good practice guidance to help promoters of financial products to comply with their legal obligations to not make false or misleading statements, or engage in misleading or deceptive conduct.

June AML/CTF Rule Changes  – What next?

We have released several updates over the last few weeks covering the registration of Chapters 1, 4, 5, 8/9, 15 and 30 of the AML/CTF Rules. Links to our previous blogs can be found here:

AML/CTF CDD Background

AML CDD Changes – Next Steps

As we highlighted, the biggest issue with these AML/CTF Rule changes has been the timing of their release. Providing reporting entities with two weeks notice to implement changes spanning 6 Chapters of the AML/CTF Rules is unrealistic and impractical.

Thankfully, however, an assisted compliance period is in place from 1 June 2014 to 31 December 2015 to help reporting entities to implement these new Customer Due Diligence (CDD) requirements. This assisted compliance period is dependent on a reporting entity meeting the conditions in the Policy (Additional Customer Due Diligence Requirements) Principles 2014 (Policy Principles).

Reporting entities should, however, begin to act now. Crucially, ‘reasonable steps’ must be taken to implement the reforms before 31 December 2015.

What are reasonable steps? The AUSTRAC CEO will decide this on a case by case basis in the event of an alleged contravention of a relevant provision (the CDD requirements) having regard to all relevant matters, including those matters highlighted within section 4 of the Policy Principles.

Although reporting entities should focus their attention on updating both Part A and Part B of their AML/CTF Programs, they may also need to consider:

  • the review and possible amendment of customer application forms;
  • ensuring that any agent appointed for the purpose of carrying out any applicable CDD procedures on behalf of the reporting entity has incorporated the revised CDD changes into its terms of service;
  • reviewing customer screening to ensure appropriate risk management systems are in place to determine whether a customer or beneficial owner is a Politically Exposed Person (PEP); and/or
  • undertaking a review of the measures that are currently in place to keep, update and review the documents, data or information collected under any applicable customer and beneficial owner identification procedures.

….there’s more

If that’s not enough CDD changes for you to deal with, then get ready for more changes.

Industry consultation on the CDD amendments has resulted in requests to AUSTRAC that the electronic safe harbour procedures for beneficial owners should be consistent with the existing electronic safe harbour procedures for customers.

See further draft changes to Chapter 4 of the Rules, which may be helpful to some reporting entities looking to streamline their customer verification processes.

Faster Dispute Resolution?

The Financial Ombudsman Service (FOS) saw the number of disputes received between January and March rise to more than 8000, a 6% increase from the same period last year.

Interestingly, nearly 900 of these disputes were dealt with at the first stage of the dispute resolution process by the financial services provider with 5,550 resolved at the second stage of the process via an agreement between the financial services provider and the complainant.

Recent FOS proposals include measures designed to address these statistics as well as the findings of its 2013 Independent Review.

It seems that FOS will continue with its proposed reforms by implementing a fast-track process for simple and low-value disputes as well as changes to its two-step dispute lodgement process, allowing financial services providers to resolve disputes through their own internal dispute resolution systems before proceeding to FOS.

A faster dispute handling process for some single issue credit listing disputes and simple low-value banking and finance disputes (that have a claim amount of less than $10,000 and that meet a set of selection criteria) will be piloted from 2nd June, with the indication that rolling improvements will be implemented until July 2015.

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This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on 1300 132 90 and we will be happy to assist.

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