Reunited and it Feels so Good – 7th Annual Legalwise Credit Law Conference

Andrea Beatty, Partner, Alessandra Romeo, Lawyer and Jack Hobson, Law Clerk of Piper Alderman shares their insights on the recently concluded 7th Annual Legalwise Credit Law Conference. 

On 24 August 2022, the 7th Annual Legalwise Credit Law Conference was conducted in person and online. This long awaited event brought together a diverse group of credit industry leaders, legal experts, politicians, and representatives. The conference’s focus this year was ‘Managing Financial Service Risks in an Age of Uncertainty’. The Hon. Stephen Jones, Minister for Financial Services, was among those present. Mr Jones and many others shared excellent insights into the evolving regulatory landscape and the upcoming issues confronting Australia’s credit industry. Andrea Beatty, financial services and FinTech Partner at Piper Alderman in Sydney, chaired the event.

Session 1: Keynote Address: Climate Change Risk in the Financial System

Dr Jonathon Kearns, Head of Domestic Markets, Reserve Bank of Australia

Dr Kearns’ presentation centred around climate change and the considerable impact it may have on the economy, particularly asset prices and their return. To mitigate this impact, Dr Kearns emphasised the importance of insurers, mainstream banks, super fund trustees and financial regulators extensively understanding and responding to climate-related risks.

Dr. Kearns spotlighted insurers, by noting that general insurers have a head start in managing climate change related risks, as insurers already have processes and regulations in place to compensate their customers for any losses caused by extreme weather events. Furthermore, insurance premiums are repriced annually, providing insurers with a regular interval to review climate related risks. Notwithstanding, Dr. Kearns emphasised that insurers must plan for larger-scale potential losses since the intensity and frequency of catastrophic weather events are increasing annually.

Continuing on, Dr. Kearns argued that banks must implement more efficient systems and procedures to handle climate change. If climate change damages and significantly affects the monetary value of a property, the borrower may have less alternatives for refinancing or upgrading their property. As a result, the lender may discover that the debt on that property has a substantially longer term and that the collateral backing the loan has decreased.

Dr. Kearns did provide a positive view on the change that was initiated by highlighting that financial regulatory bodies keep making progress in analysing and responding to the consequences of climate change. The Council of Financial Regulators (CFR) established a Climate Working Group in 2017 (CWG). The CWG’s goal were to encourage financial institutions to develop and share information regarding climate hazards, as well as how they are managing their risks. The CFR Climate Working Group has highlighted three key issues over the last year: the Climate Vulnerability Assessment (CVA); disclosures; taxonomies and sustainable finance.

Session 2: The Federal Election Is Over: What Does the Policy Agenda for Financial Services Look Like?

Panel Members:  Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services (pre-recorded interview), Christine Cupitt, Executive Director Policy, Australian Banking Association, Karen Cox, CEO, Financial Rights Legal Centre, Diane Tate, CEO, Australian Finance Industry Association and Peter White, Managing Director, Finance Brokers Association of Australia, Facilitator Steven Klimt, Partner, Clayton Utz

Session 2 was split into two parts. The audience was first given a pre-recorded interview with the Hon Stephen Jones MP (the Minister). Following that, Steven Klimt moderated a panel discussion that included Christine Cupitt, Karen Cox, Diane Tate and Peter White.

In his pre-recorded interview, the Minister discussed the Government’s focus on financial sector reform. The Minister noted this focus on reform directly coincides with new Albanese Government. He stated “this [was] a new government, a new response, and a fresh set of eyes regulating for the next century”. To demonstrate the Government’s focus on financial sector reform, the Minister expressed his intention to enact all of the Banking Royal Commission’s recommendations.

Narrowing his focus, the Minister spoke extensively about his plans to regulate the Buy Now Pay Later (‘BNPL’) industry. BNPL products allow a consumer to receive goods and services immediately, but pay for them over time.[1] The Minister plans to adopt a comprehensive approach to regulation, reviewing all aspects of BNPL industry practices. Unequivocally, the Minister regards BNPL as a credit product and will seek to regulate it as such. However, the Minister was less forthcoming to share the exact method of regulating BNPL products. Although, the Minister hinted that the current responsible lending regime will “play a role” in its regulation.

The panel then provided their perspective on the Minister’s comments by highlighting the potential issues and hurdles with these future reforms. Overall, the panel were glad to hear the Minister reiterate the government’s commitment to regulatory reform. Karen Cox expressed her relief that the Minister did not intend to reconsider the Morrison Government’s responsible lending reforms. To conclude, the panel members agreed that the BNPL industry should be regulated. However, Diane Tate questioned how the BNPL regulations could keep up with technological developments and data concerns, and contended that consumers do not see BNPL as credit, and therefore imposing credit limits on BNPL products will not suffice.

Session 3: Emerging Risks Impacting Credit (risk) and Security

Presented by Andrew Gray, Partner, HWL Ebsworth and Rhiannon Eagles, Head of Litigation Pacific, Aon

In session 3, Mr Grey and Ms Eagles discussed how insurance markets and the law deal with emerging risks, including: cyber risks; money laundering and terrorism financing; and climate change.

The presenters began with an overview of the cyber risk landscape. They contended that the expansion of developing technologies and the rise of digitisation have directly coincided with increases in software supply chain attacks and ransomware attacks across all sectors. To counter these trends, Mr Grey and Ms Eagles acknowledged that the Security Legislation Amendment (Critical Infrastructure Protection) Act 2022 has codified greater statutory protection measures for sectors and consumers.

To exemplify the risks associated with the expanding digitalisation era, the presenters drew attention to the recent landmark decision of ASIC v RI Advice Group Pty Ltd [2022] FCA 496. The Federal Court of Australia ruled that RI Advice Group Pty Ltd had violated sections 912A(1)(a) and (h) of the Corporations Act 2001 (Cth) for failing to have adequate cybersecurity risk and cyber resilience management plans in place. The presenters stressed that this case is the first known action of its kind, highlighting ASIC’s position and rising concern surrounding cybersecurity vulnerabilities.

In light of recent international litigation, Mr Grey and Ms Eagles closed by recognising the possibility of climate change action against Australian financial service providers. In Client Earth v Belgian National Bank (2021), Client Earth questioned the legitimacy of a European ‘quantitative easing’ programmes. Client Earth claimed that that the programmes failed to take environment protection laws into consideration by providing loans to some of Europe’s biggest polluters.

Session 4: Unfair Contract Terms: Risks and Complexities

Presented by Steven Klimt, Partner, Clayton Utz

Mr Klimt’s presentation centred on recent developments stemming from the case of ASIC v Bendigo and Adelaide Bank Limited [2020] FCA 716 (Bendigo and Adelaide Bank case). He noted that the case of ASIC v Bank of Queensland Limited [2021] FCA 957 (BOQ case) had a comparable factual matrix to the Bendigo and Adelaide Bank case, and that the two judgements were consistent as a result.

In both cases, the Courts ordered that the contracts be modified by substituting the unfair contract terms with replacement clauses. Mr Klimt, on the other hand, argued that the Courts lacked jurisdiction in making these orders under section 12GD of the Australian Securities and Investments Commission 2001 (Cth). Specifically, he noted that these orders can only be issued to avert loss or harm.

More specifically, Mr Klimt explained the legal justification the Court used to declare a number of contract provisions ‘unfair’. Starting with the ‘indemnity’ terms, he outlined that the terms did not provide the consumer with any corresponding rights and the circumstances in which the loss or costs occurred were not within the customers control.

Additionally, Mr. Klimt explained the unfairness of the ‘unilateral variation or termination’ terms as stated by the Court. These terms permitted the lender to vary the amount of funds that the consumer could access, however, the notice period provided was too short for the consumer to explore alternative refinancing options. Further, the lender could terminate the arrangement if the borrower refused to agree to the new conditions. Finally, if the consumer terminated the contract due to the variation, it would result in unspecified fees.

To wrap up, Mr Klimt acknowledged the future reforms on the horizon. For instance, the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022 would modify the existing unfair contract terms framework. Despite the fact that the Bill lapsed in April 2022,  Mr Klimt anticipates that the suggested amendments will be reintroduced to Parliament.

Session 5: Triennial Banking Code of Practice Review

Presented by Steve Blinkhorn, Policy Director, Australian Banking Association and Ian Lockhart, Partner, Minter Ellison

In the fifth session of the day, Mr Blinkhorn and Mr Lockhart considered the implications and key findings of the Independent Review on the Banking Code of Practice (BCOP).

The BCOP came into effect in July 2018. The BCOP is a set of enforceable standards that Australian banks must meet for their consumers, small companies and guarantors.[2] An Independent Review of the BCOP was issued in November 2021, with 116 recommendations. These recommendations were designed to create a BCOP that enhances consumer protection without unfairly burdening mainstream banks and other financial institutions. Looking ahead, Mr Blinkhorn and Mr Lockhart underlined that it would be critical to include these recommendations.

Four important recommendations were highlighted by the speakers. These included:

1. Vulnerable Consumers: including a wider definition of ‘vulnerability’ to encompass persons who, due to their personal situations, are especially vulnerable to financial harm;
2. Small Business: integrating the 2020 Pottinger Review’s definition of ‘small business’;
3. Comprehensive Credit Reporting: if a consumer is a victim of domestic violence, banks should not record such negative information;
4. Aboriginal and Torres Strait Islander Consumers: continually updating industry statements of support and implementing alternative personal identification options for Aboriginal and Torres Strait Island Consumers.

In conclusion, the speakers reaffirmed the value of future-proofing the BCOP to ensure it can continue to serve its intended purpose in the evolving financial services sector.

Session 6: AFCA RG271 Internal Dispute Resolution Update

Presented by Diana Ennis, Executive General Manager – Operations AFCA

The ultimate focus of Ms Ennis’ presentation centred on how the Australian Financial Complaints Authority (AFCA) is changing as a result of new regulations and consumer demands.

To begin, Ms Ennis outlined AFCA’s current efficacy, noting that 71,151 of the 72,358 complaints received between July 2021 and June 2022, were resolved. Ms Ennis followed by pointing out that AFCA has revised its procedure and deadlines considerably to comply with the ASIC Regulatory Guide 271 Internal Dispute Resolution (RG 271).

RG 271 primarily established updated Internal Dispute Resolution (IDR) timelines for complaints. For instance, the IDR response time for complaints involving traditional trustees or superannuation funds is now 45 days. This response time is exactly half of the previous timeframe under the ASIC Regulatory Guide 165 Licensing: Internal and external dispute resolution. Further, the response time for generic complaints decreased from 45 to 30 days.

In light of these developments, Ms Ennis advised that financial institutions maintaining contact and taking proactive steps with clients is crucial to preventing issues from progressing to AFCA. However, in the event of an AFCA complaint, Ms Ennis stressed being open and honest is best practise for financial institutions. This includes taking the initiative by alerting AFCA to any internal vulnerability problems within the financial institutions.

Ms Ennis concluded by adding that the Independent Review of AFCA, which was released in November 2022, published 14 recommendations. Looking to the future, AFCA will endeavour to implement as many recommendations into its procedures and approaches.

Session 7: Cases Update

Presented by Ian Davidson SC, 8 Eight Selborne

Mr Ian Davidson SC’s presentation focused on a plethora of cases handed down this year in the credit industry.

One case mentioned was Stubbings v Jams No 2 (2022) ALJR 271 (Stubbings), a case which addressed both statutory and equitable unconscionability issues. Specifically, the High Court explored whether the use of independent legal and financial advisory certificates, in the context of asset-based lending, serves as a barrier to a finding of unconscionable conduct. The High Court ruled that such certificates will not ‘shield’ lenders from unconscionable conduct if concerns regarding a borrower’s vulnerability arise. As such, Mr Davidson emphasised that the ruling has served as a helpful reminder to lenders that thorough due diligence must be executed before entering into loans with borrowers.

Session 8: Privacy Act Review, Practical Guidance on How to Align with the GDPR Requirements

Presented by Olga Ganopolsky, General Counsel – Privacy and Data, Macquarie Group Limited

The purpose of this session, presented by Ms Ganopolsky, was twofold. First, to discuss the main concerns raised by the Government’s continuing review of the Privacy Act 1988 (Cth) (Privacy Act). Second, to examine how Australia’s privacy and security laws may be enhanced by the General Data Protection Regulation (GDPR). The GPDR was approved by the European Union and came into effect on 25 May 2018. The aim of the GDPR is to regulate how companies handle and make use of the personal information they collect online from consumers.

One pertinent problem discussed by Ms Ganopolsky related to the current wording of the definition of ‘personal information’ under the Privacy Act. Currently, the definition of ‘personal information’ refers to “information about an identified individual”. Ms Ganopolsky noted that the words ‘about an individual’ directs attention to the need for the individual to be a subject matter of the information or opinion. This requirement might not be difficult to satisfy given information and opinions can have multiple subject matters. In order to restrict such a wide term, Ms Ganopolsky argued in favour of adopting the GDPR’s narrower definition: “information relating to an identifiable individual”.

Further, Ms Ganopolsky noted that the Privacy Act’s definitions of ‘consent’ and ‘notice’ are inadequate. She stressed that because of the Privacy Act’s expansive and prescriptive nature, these definitions are neither fully protective or functional in practice. Ms Ganopolsky proposed that the Privacy Act follow the GDPR’s structure, which clearly outlies the rights and obligations of both the consumer and the controller of the personal data.

Wrapping up, Ms Ganopolsky emphasised that both local and foreign data beaches are on the rise. In response, she anticipates further red tape and enforcement are likely to be seen.

Session 9: Recent Compliance Alert! ASIC imposes first DDO interim stop order

Presented by Ian Lockhart, Partner, Minter Ellison

To begin with, Mr Lockhart gave a quick overview of the Design and Distribution Obligations (DDO) regime and its purpose.

The DDO regime came into effect on 5 October 2021 under the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (Cth). Currently, the DDO’s are set out under Part 7.8A of the Corporations Act 2001 (Cth). Mr. Lockhart clarified how the DDO regime required issuers and distributors to prioritise customer outcomes at every step of the financial product life cycle in order to improve consumer outcomes. Issuers and distributors must ensure that consumers receive financial products that are likely to meet their financial goals, circumstances and needs.

On 28 July 2022, ASIC declared that they had imposed interim stop orders against three financial entities: Responsible Entity Services Limited (RES) and two UGC Global Group subsidiaries (UGC).The orders were placed in response to shortcomings in their products’ target market determination. These orders forbid RES and UGC from issuing interests in the relevant management investment scheme or shares to retail clients.

Mr. Lockhart emphasised that this enforcement activity is proof of ASIC’s current and future surveillance and intervention intentions. Additionally, Mr Lockhart, quoting ASIC Deputy Karen Chester, emphasised that the financial services sector has had enough time to bed down its implementation of the DDO regime. To conclude, Mr. Lockhart added that ASIC is likely to enforce any questionable financial products that fall short of the DDO regime.

Session 10: A New Payments Ecosystem: A Greater Role for Regulators and Government?

Presented by Joshua Annese, Partner Piper Alderman, Michael Bacina, Partner, Piper Alderman and Nikesh Lalchandani, Chartered Banker, Innovations Accelerated

In the final session, Joshua Annese, Nikesh Lalchandani and Michael Bacina outlined the numerous changes occurring in the digital payments market space.

Mr Annese kicked things off with a general discussion relating to the development of BNPL products. He pointed out that there had been a strong and positive change in the products. Notwithstanding, there are still shortcomings in this form of payment. Specifically, Mr Annese noted that, when using BNPL products, it was found that 20% of users missed instalments and were forced to pay late fees. As more regulations are introduced, Mr Bacina and Mr Lalchandani highlighted that given BNPL increasing transaction prices by 4% on average, consumers may lose in interest in BNPL’s products. Consequentially, Mr Annese stressed that the Labour Government will likely crack down on the regulation of BNPL, with a particular focus on responsible lending.

Mr. Lalchandani also brought up the RBA’s announcement, made on 9 August 2022, that it was working with the Digital Finance Cooperative Study Centre on a research initiative to examine use cases for central bank digital currency (CBDC).  A CBDC is virtual currency backed and issued by a mainstream bank. With cryptocurrencies and stable coins gaining popularity, Mr Lalchandani highlighted that the RBA is genuinely and carefully considering the use of CBDC. To showcase the prominence of decentralised systems, Mr Annese pointed out that a section of ASIC’s 2022-2026 Corporate Plan includes digital currencies and assets.

Despite the RBA’s forward thinking, Mr Lalchandani and Mr Annese emphasised Australia is still slipping behind on the international plane. Significant advancements in digital payment systems are taking place all throughout Asia. Both speakers agreed that there are too many regulations in place in Australia. It is crucial to integrate with the rest of the world given the volume of goods and services that Australians buy online. Adding to the discussion, Mr. Bacina claimed that accepting digital currency would provide the government with a level of aggregate data that would be extremely helpful in managing the economy and creating laws and regulations. Specifically, digital currency transactions allows the economy to see its spending in real time.

The presenters concluded with a challenging dilemma: how can we protect consumers without limiting innovation?

Andrea Beatty is a commercial Partner at Piper Alderman focusing on financial services. She is a leading financial services lawyer who has been listed in Australia’s Best Lawyers every year since 2012 in the areas of financial institutions and regulatory practice. She has written six editions of the leading consumer law text ‘Annotated National Code’ published by LexisNexis. Andrea advises and represents clients including start-ups, Australian financial services licensees (AFSL) and Australian credit licensees (ACL) on all aspects of financial services regulation and corporate finance including licence applications, regulatory compliance projects and audits, regulatory enforcement defences, and regulator investigations and disputes. Andrea’s experience includes advising clients on financial products and channels, including peer to peer lending platforms, crowd funding, payment systems, crypto currency, reward programs, gift cards and financial services acquisitions, disposals and alliances. Andrea also has in-depth knowledge of privacy laws and regularly advises clients on data and privacy security and breach remediation. Andrea’s financial services blog and published articles can be found at www.andreabeatty.com.au. You may connect with Andrea via email: abeatty@piperalderman.com.au or LinkedIn

Jack Hobson is law clerk at Piper Alderman in the financial services and FinTech team. He is currently completing a Bachelor of Laws and Bachelor of Media and Communications at Macquarie University. Jack is also a consistent contributor to the Lexis Nexis Financial Services Newsletter. Connect with Jack via LinkedIn

[1] ASIC Report 672: Buy Now Pay Later: An Industry Update (Report, November 2020) 3.
[2] ‘Banking Code of Practice 2019’, Australian Banking Association (Web Page, March 2020) https://www.ausbanking.org.au/2019-banking-code-of-practice/.