Welcome to the first issue of our Regulatory Highlights.

Key Takeaways

• Defective disclosure documents may have criminal consequences.
• Anything false or misleading may have severe consequences. Businesses should monitor all of their communications with the outside world, including website content, online advertisement, seminars, brochures, emails, social media posts and so on.
• Insider trading is not limited to exchange-traded instruments, and may involve over-the-counter (OTC) products such as Contracts for Difference (CFDs).
• The obligation of reporting cross-border movements of monetary instruments to AUSTRAC became effective on 17 June 2022.
• The remittance sector will be the focus of AUSTRAC’s upcoming risk assessment.

Financial Services Highlights

Defective disclosure statements: Avanteos Investments

Avanteos Investments Limited, a subsidiary of the Commonwealth Bank of Australia at the relevant time, was the first person prosecuted and convicted under s 1021J(1) of the Corporations Act 2001 (Cth) (Corporations Act), which makes it an offence for a person preparing a disclosure document, who becomes aware of the defectiveness of the disclosure document without taking reasonable steps, as soon as practicable, to ensure that the document ‘is not distributed or is not accompanied by information that corrects the deficiency’.

The matter involved 499 deceased members of Avanteos superannuation funds being charged nearly $700,000 fees after their death without authorisation. The defective disclosure was with respect to the charging of such fees.

False or misleading statements: Allianz and AWP

Allianz Australia Insurance Limited (Allianz) and AWP Australia Pty Ltd (AWP) have pleaded guilty to making false or misleading statements.

The matter concerned Allianz and AWP’s misrepresentation of the characteristics or the coverage of travel insurance products, including website advertisements on the maximum travel insurance benefits without stating the sub-limits, exclusions and other terms and conditions limiting the benefits.

A contravention of s 1041E of the Corporations Act attracts a maximum penalty of the greater of (1) $8,100,000; (2) three times the total value of the benefits obtained that can be reasonably attributed to the commission of the offence, if the court is able to ascertain the total value of such benefits; or (3) 10 percent of the annual turnover of the body corporate within the 12 months ‘ending at the end of the month in which the body corporate committed, or began committing, the offence’.

False and misleading marketing: Squirrel Super

Squirrel Superannuation Services Pty Ltd has received a penalty notice of $55,000 from the Federal Court for false and misleading marketing with respect to investing in residential properties through self-managed superannuation funds (SMSF), via distributing a brochure at a seminar and emails on approximately 9,420 occasions between 2015 and 2019.

The brochure included misleading representations concerning the returns of residential investment properties through SMSF, the ‘remarkable’ difference in return between investing in a superannuation fund and investing in residential properties through SMSF, and the ‘surprisingly low’ costs associated with managing investment properties through SMSF as compared to investing through managed investment funds through financial advisors.

Insider trading conviction: CFDs

Mr Jin Xi Li has received nine months of imprisonment for insider trading using CFDs of PanAust Limited (ASX: PNA) both by himself and through his wife, while possessing insider information on a takeover bid for PanAust. His conduct resulted in a total profit of $343,000.  

Insider trading conviction: Former general manager of Sigma

Mr Michael Story, the general manager of Sigma Health Care Limited (Sigma) at the time, was heavily involved in Sigma’s negotiations with a key supplier knowing that the contract was unlikely to be renewed. He used that information to sell Sigma shares and obtained financial benefits. Mr Story was sentenced to 14 months of imprisonment and ordered to pay $70,179.37 in pecuniary penalty under the Proceeds of Crime Act 2002 (Cth).

Prevention of consumer harm: Speech by ASIC Deputy Chair Karen Chester

Ms Chester spoke to the Financial Services Council members at a webinar on 16 June about climate change and sustainability, and consumer outcomes. Regarding the latter point, Ms Chester highlighted the following: 

• Design and Distribution Obligation (DDO): ASIC considers that the industry has sufficient time to implement DDO, and it now expects compliance with the obligations. ASIC has adopted a targeted risk-based approach towards surveillance.
• Internal Dispute Resolution (IDR): IDR reporting is enforceable and assists financial services organisations in identifying and dealing with systemic issues that are revealed by the complaints.
• Breach reporting: ASIC’s focus is on the practical implementation of this broader and more complex reporting regime. It is still working out its approach to the publication of the data obtained.
• Misleading product labelling and advertising: ASIC has looked into this issue within the context of managed investment schemes. Its current focus is examining managed fund advertising through ‘traditional and digital media, focusing on risk and return’. Problematic practices may include ‘promotion of implausibly high or reliable returns’, lack of or insufficient statements on risks, ‘misleading comparisons to lower-risk products’ and ‘inappropriate benchmarks to suggest superior performance’.

AML/CTF Highlights

Reporting of cross-border movements of monetary instruments

A new obligation to report cross-border movements of monetary instruments (physical currency, bearer negotiable instruments and other things prescribed in the AML/CTF Rules) if the combined value is AU$10,000 or more came into effect on 17 June 2022. There are two types of reports:

• Monetary Instrument (Carrying) report: a person that carries such monetary instruments and enters into or departs Australia via an international airport or seaport must file a report before passing through customs when arriving or departing Australia;
• Monetary Instrument (Sending/received) report: a person that sends such monetary instruments out of Australia (sender) or a person that has received such monetary instruments from outside Australia (recipient) via ships, courier or mail:
  • A sender must submit a report prior to sending the monetary instruments;
  • A recipient must submit a report within five business days of receiving the monetary instruments.

AUSTRAC has also updated its guidance on Threshold Transaction Reports (TTRs), which mandates the reporting of individual cash transactions valued at AU$10,000 or more. Reporting entities are reminded of the potential issue of structuring and their obligations to report suspicious matters. A transitional period of 12 months commencing on 1 July 2022 has been provided.

Speech of Nicole Rose (AUSTRAC CEO) at ACAMS Second Annual Meeting AML & Anti-Financial Crime Conference Australasia

Ms Rose highlighted a 318% increase in the reporting of suspicious matters in the five-year period till 30 June 2021 and a 63% increase in International Funds Transfer Instruction (IFTI) reports.

AUSTRAC’s upcoming risk assessments will focus on remittance businesses, including independent remittance dealers, remittance network providers and the associated affiliates.

Cryptocurrencies have been abused in both traditional and emerging crime types, including money laundering and terrorism financing, national security, child exploitation and ransomware. 500 ransomware attacks were reported to the Australian Cyber Security Centre (ACSC) in the 2021 financial year alone.

Ms Rose addressed the issue of de-banking, which has been an ongoing issue faced by a range of businesses, including remittance, digital currency exchanges and so on. AUSTRAC discourages ‘the indiscriminate and widespread closure of accounts across entire financial services sectors’.

AUSTRAC is participating in two government groups to deal with these issues: the Interdepartmental Committee led by the Department of Foreign Affairs and Trade and the Council of Financial Regulators Working Group on De-banking. It is also in the process of developing guidance materials with respect to dealings with higher-risk customers.