From 1 January 2015, a new ‘common’ risk management prudential standard will apply to banks, general insurers and life companies and, in many cases, to other companies in the corporate groups in which those institutions sit. Michael Mathieson looks at the ‘three lines of defence’ model that APRA proposes to adopt in its associated risk management guidance materials.

In recent times, APRA has been active in prescribing duties for directors of the institutions it regulates. In light of what has happened, it is worth asking: should the question of directors’ duties be excluded from APRA’s prudential standard-making powers?

There is a contest underway between two heavyweights. In one corner of the ring we have Big Data. In the other corner we have the definition of ‘personal advice’ in section 766B(3) of the Corporations Act.

Today the Full Federal Court clarified the law of penalties as it applies to fees. The key development is that, in considering whether the amount of a fee is ‘extravagant and exorbitant’ compared to the potential costs incurred in dealing with a failure to perform an obligation, the court held that indirect costs could be taken into account. Subject to a likely attempt to appeal to the High Court, this development imposes a substantial hurdle for current and future penalties class actions. Partner Jenny Campbell and Lawyer Alicia Lyons report.

In 2014, ASIC started promoting the use of behavioural economics in its regulatory activities. Two reports recently released by ASIC provide clues as to how ASIC may try to counteract behavioural biases in the future.

In preparing its Final Report, the FSI has clearly paid close attention to the report of the Senate Economics References Committee’s Report into ASIC’s performance and its recommendations designed to strengthen ASIC through a combination of better funding, an enhanced regulatory toolkit and higher penalties, with a view to enabling it to be the ‘respected and feared’ leader desired by the Senate Committee. The impact of the FSI’s recommendations is now likely to be the subject of further submissions to the Government before any decisions are taken.

In coming to a recent decision, the Queensland Supreme Court has taken a narrow view of a section of that state’s civil liability legislation that was designed to limit the liability of public authorities in Queensland. Partner Nicholas Ng and Senior Associate Goran Gelic report on this decision and its implication of greater liability exposure.

The High Court yesterday overturned a decision of the Full Court of the Federal Court and held that if the same loss is caused by both apportionable and non-apportionable claims, proportionate liability does not apply to the non-apportionable claims. The High Court also ordered that the defendant’s insurer pay the costs of the appeal, resulting in its total liability being greater than the limit of indemnity under the policy. Partners Malcolm Stephens and Jenny Campbell and Senior Associate Mark Hare examine the decision and its implications.

You would need to have been living under a large rock with your hearing aid turned off not to be aware of the current debates raging in relation to tax. But it is hard to sort the wood from the trees or the real facts and issues from all the surrounding noise.

In October 2014, ASIC released its report into retail life insurance advice practices. The findings were pretty grim – with poor advice being more common than good, or even adequate, advice. ASIC said that advisers were motivated by the promise of commissions, not the interests of their clients. Following the ASIC report, the Association of Financial Advisers and the Financial Services Council bravely commissioned a review of the report by a working group chaired by John Trowbridge. They asked Mr Trowbridge to make recommendations on how the industry should respond to ASIC’s findings. And he has.

A recent Victorian Supreme Court decision has resolved a disputed construction of a major shareholder exclusion in a D&O policy in the insurer’s favour after considering the broad commercial purpose of these provisions. Partner Andrew Maher and Law Graduate Shelley Drenth report.

In his report earlier this year on retail life insurance advice John Trowbridge recommended that every advice licensee include at least half of the 13 relevant life insurers on its approved product list. The Assistant Treasurer has since indicated the Government may ‘consider measures to widen APLs by 1 July 2016’.

As cyber-attacks on Australian businesses increase, many companies are discovering they are not adequately prepared or insured to handle a cyber-attack.

Issues of securities, interests in managed investment schemes and other types of financial products typically involve a number of ‘designated services’ under Australia’s anti-money laundering and counter terrorism financing (AML/CTF) regime. However, in the midst of preparing governing documents, disclosure documents and negotiating with service providers, it is all too easy for parties to neglect AML/CTF issues when preparing for a product launch. They should not, particularly in light of recent developments on the AML/CTF front.

As an institution, APRA can be partial to bureaucratese. As keen readers of APRA’s writings, we sometimes find ourselves asking – what is APRA really saying here? And that is a question worth asking when reading APRA’s recent letter to life companies setting out its concerns with group insurance.

Ecstasy, cocaine and industrial action at a construction site are unlikely subjects for an article on financial services regulation. They are, however, the things that have led to what could be a significant change to the way in which financial services regulators like ASIC and APRA can resolve civil penalty proceedings.

Regulators, particularly in the UK and Australia, are increasingly interested in corporate culture in the financial services industry, its impact on the integrity of the system, and what the regulators are doing to try to entrench a corporate culture that works for the benefit of consumers and investors. In this article, we look at various aspects of the relationship between corporate culture and conduct risk – convincing Australian financial services organisations that by focusing less on profit, and more on investors’ long-term interests and market integrity, they really are helping themselves.

Corporate culture, and its role in shaping conduct within the financial services sector, is now clearly at the forefront of ASIC’s enforcement agenda. This focus was apparent in ASIC’s 2014-2015 strategic outlook, released in October 2014, which identified corporate culture as a key risk driver and poor culture within the financial services sector as a root cause of conduct that threatens the integrity of the financial services industry.

Federal Treasurer Joe Hockey released the Financial System Inquiry report on 7 December 2014 saying that: ‘[the] report I release today delivers on our election commitment and lays out a blueprint for the financial system over the next decade.’ And he is right – the Government did, as promised, commission an inquiry and the report does set out recommendations for how the financial system ‘could be positioned to best meet Australia’s evolving needs and support Australia’s economic growth’. But the electorate may have hoped for more than a report and a blueprint. Of more interest will be whether the blueprint will be implemented. And here, the Treasurer has been more circumspect.

The Federal Government today released its long-awaited response to the Financial System Inquiry. The Government says it has accepted all but one of the Inquiry’s 44 recommendations released late last year. And this is broadly true, with the only substantial recommendation to be rejected being the recommendation to stop superannuation funds borrowing to invest.