Jaime Lumsden Kelly

The Fold Legal is delighted to have made a submission to the Treasury Consultation Paper on Crypto asset secondary service providers: Licensing and custody requirements, which is looking at how the industry will be regulated in the future.

The regulation of the crypto industry is an important step for both the local and global crypto industry. As we have seen with other industries, most notably new energy, uncertainty stifles innovation and a clear pathway to regulation provides the strongest foundation for true innovation, growth, consumer protection and a competitive market.

The scope of regulatory reform outlined in the Consultation Paper is centred on the following key principles:

• ensuring that regulation is fit for purpose, technology neutral and risk-focused
• creating a predictable, light touch, consistent and simple legal framework
• avoiding undue restrictions
• recognising the unique nature of digital assets, and
• harnessing the power of the private sector.

The Consultation Paper presents an opportunity to build a regulatory framework for the future that is technologically agnostic, fit for purpose, has in-built flexibility and strikes an appropriate balance between regulation, consumer protection and innovation. Embarking on legislative change of this nature is no small task and it is critical that we take the opportunity to ensure that the regulatory framework meets the intended objectives and provides the industry with a clear and appropriate transition pathway.

Our submission proposes a regime within the Corporations Act that utilises the existing licensing framework and includes additional obligations for advisory and brokering services undertaken by licensees. In our view, this approach provides:

• the greatest flexibility for current crypto providers to expand their business into traditional markets and for traditional businesses to expand into crypto-assets
• reflects the realities of the provision of services in relation to crypto-assets
• delineates between financial products and crypto-assets
• imposes obligations commensurate with the risks
• mitigates licensing and regulatory duplication
• promotes regulatory certainty, and
• provides appropriate consumer protections.

The Fold Legal is deeply steeped in the fintech space since early 2013 and has been actively involved in the crypto industry since 2015. We are technical specialists that have a broad and deep understanding of blockchain technology, crypto assets, exchanges, DAOs, alternate platforms and crypto product and service offerings. Our crypto knowledge combined with our financial services expertise is market leading. We use our industry knowledge and expertise to deliver practical, compliant and innovative solutions for our clients. We have worked with a range of clients including crypto exchanges, miners, crypto payment businesses, crypto platforms, DAOs and crypto token issuers.

Read the full submission here.

By Jaime Lumsden, Michele Levine or Nicholas Pavouris

The post The Fold Legal prepares submission on the future of crypto regulation appeared first on AdviserVoice.

Jaime Lumsden Kelly

The Australian Finance Industry Association (AFIA) has released a new voluntary Buy Now Pay Later (BNPL) Code (Code) to address criticism that the industry is under-regulated and to enhance consumer protections. The objective of the Code is to encourage a customer centric approach, promote industry standards and drive an uplift in compliance. In doing so, the Code imposes several conditions and protections that go beyond the current legal and regulatory regime for BNPL providers.

Although the Code is not compulsory, 8 major BNPL providers have signed up as members and were Code compliant on the 1 March 2021 launch date.

For many of the current compliant members, it is fair to say that minor (if any) changes were required on becoming Code compliant. Nevertheless, the Code serves multiple purposes that seek to raise the standards of the industry. It does so by setting an industry benchmark that (in some respects) goes beyond the current legal and regulatory framework. It will be interesting to see the impact the Code has on the BNPL industry, providers and customers – particularly whether the Code fuels any competitive or market pressures in the industry or changes to the user experience.

In this blog, we take a look at the Code and highlight where we think the Code raises industry standards, simply maintains the status quo, or may be wanting.

What is the Code?

The Code is a set of 9 standards that BNPL providers that are “Code compliant” pledge to follow.

At a high-level, the standards require BNPL providers to:

1. Focus on customers;
2. Be fair, honest and ethical;
3. Have transparent products;
4. Conduct suitability checks;
5. Review products on an ongoing basis;
6. Fairly deal with complaints;
7. Provide financial hardship assistance;
8. Comply with legal and industry obligations; and
9. Promote the code.

How has the Code gone further than the current regulatory framework?

In answering this question, we have compared the current framework to the standards.

AFCA

One of the more significant changes is that the Code will require members to join AFCA, an external dispute resolution body for the financial services and credit industries.

Although not a current requirement under law, we have definitely seen a recent push by providers in the BNPL sector to join AFCA to provide further recourse to customers and add a level of rigour to the complaints process. It is positive to see a willingness within the Code to be bound by the additional oversight of AFCA, which is also a benefit to customers.

Vulnerability and hardship

The standards do impose a commitment to consider customer vulnerability before providing services. This is a great initiative and particularly important given 21% of BNPL users ASIC surveyed missed a payment in the last 12 months.^[1] It also goes above and beyond the current regulatory regime as currently there is no specific regulatory requirement to consider vulnerability.

We note that the vulnerability requirements are similar to those that apply in the banking and insurance space – they are quite high level and rely on the customer informing or actively demonstrating that they are vulnerable. As outlined in our previous blog on vulnerability^[2], this approach does pose some challenges from an implementation point of view and requires a fair amount of self-advocacy by customers. This may be particularly tricky for the BNPL sector given the demographic is heavily skewed to younger customers who may have never owned a credit card.

Interestingly, there will be a requirement for BNPL providers to consider hardship requests. The hardship requirements are not as robust as those that apply to consumer credit under the National Credit Code. However, the requirements seem to be appropriately pitched given that BNPL products are not regulated as consumer credit. The standards also impose a number of automated and helpful measures to protect customers who may be suffering hardship, including:

• Taking reasonable steps to exclude customers from receiving promotional material where they have a financial hardship arrangement; and
• If a consumer is behind in payments at the time, not providing any additional BNPL products or services or increasing their current limits.

A further win for customers is that the Code states “we will never initiate bankruptcy proceedings”. This is certainly a positive outcome for customers. However, this protection may be lost if BNPL providers on sell the debt to a debt collection agency.

Credit/suitability assessment

One of the most significant inclusions in the Code is the implementation of a credit suitability framework. While the proposal falls short of the responsible lending criteria in place for credit providers, it is a step in the right direction and seems to strike a reasonable balance between consumer protection and efficient business practice. This is particularly so in light of the changes proposed by the Government last year to water down the responsible lending laws following the ASIC v Westpac case.

While the Code’s credit suitability checks add a further layer of protection for consumers, in our view, credit businesses (especially those that are maturing) often implement some form of credit risk assessment to manage their book of business and mitigate bad debts. For many BNPL providers, this may be a business imperative to ensure future and sustained growth and investor interest to maintain the record valuations we have seen throughout the COVID-19 pandemic.

How has the Code fallen short of the current regulatory framework?

There are a number of areas where the Code falls short of the current regulatory standards of other industries.

Transparent and reviewed products

The BNPL industry will be subject to the new design and distribution obligations^[3] (DDO) that come into effect in October 2021.

Standards 3 and 5 of the Code set out some guidelines for creating products, and providing disclosure around fees, including notice requirements and ensuring that products are transparent and suitable for customers. The DDO requirements will be more involved than those in the Code and it remains to be seen how the Code will lift standards in this space particularly given that BNPL providers should be taking action now to be DDO compliant from October.

Impacts on credit

One thing that the Code doesn’t address is educating consumers on the impact BNPL products may have on their credit rating. While many BNPL customers may not currently hold other credit products, future applications for credit cards and home loans may be impacted if they have had issues repaying any BNPL products.

Impact on merchants and partners

The Code has included some requirements on merchants and retail partners to meet certain standards. While this is a positive initiative, in our view many of the obligations imposed by the Code would already need to be managed by merchants in order to comply with their obligations relating to unfair contracts and misleading and deceptive conduct.

How to join the code?

Any BNPL industry players that think they are Code compliant may apply for membership of the AFIA. All applications are assessed by an independent Committee (which does not have any representatives from current Code compliant members). This should encourage fair dealing and allay any concerns of anti-competitive behaviour.

What does the Code mean moving forward?

The Financial Conduct Authority (the UK’s financial regulator) has recently made moves to tighten the regulatory leash on BNPL providers and there have been growing voices within Australian circles to force BNPL to be completely regulated as credit in Australia. We think that ASIC will be closely watching the UK’s approach. Australia has followed the UK’s lead on a number of initiatives in the financial services space (e.g. Opening Banking) and this could be another example…watch this space!

In time, we will be able to assess the impact the Code has had on the industry standards. It will be fascinating to see if the Code drives market and competitive tailwinds in response to changes in consumer and merchant behaviours, which encourage (or make it essential for) smaller and/or boutique BNPL players to sign up to the Code.

By Jaime Lumsden, Michele Levine and Nicholas Pavouris

———

[1] https://download.asic.gov.au/media/5852803/rep672-published-16-november-2020-2.pdf
[2] https://www.thefoldlegal.com.au/blog/fairness-vulnerability-and-fintechs
[3] https://www.thefoldlegal.com.au/blog/credit-where-credit-is-due-your-design-and-distribution-obligations

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It can take time and many iterations before businesses can better cater and respond to customer vulnerability.

Regulators have a laser focus on ‘fairness’ following the numerous scandals involving overcharging, underservicing and poor customer outcomes that were laid bare in the Royal Commission into Banking. For fintechs, this means making sure fairness is embedded at every customer touch point.

This is no simple task as fairness is contextual and needs to address any customer vulnerabilities. In the midst of the COVID-19 global pandemic, identifying and responding to your vulnerable customers fairly is more important than ever!

What is fairness?

What is fair isn’t universal – it depends on the context, your product or service and the consumer’s circumstances.

When it comes to fairness, fintechs fair better than most. Why? Because they want to challenge the status quo, address a consumer gap or need and foster deeper customer trust.

Some fintechs are using features like greater transparency, improved comparability, better rates, lower fees, increased personalisation and greater customer control. These features help create fairer products and services but alone will not ensure consumer fairness. Why? Because fairness needs to be embedded in all touch points in the customer journey. This is no small feat.

Catering to vulnerable consumers is a good place to start

A good litmus test for fairness is how you cater to your most vulnerable consumers. Vulnerability is the next frontier in the consumer space but it’s yet to be defined by regulators in Australia.

Who is a vulnerable customer?

In the UK, the Financial Conduct Authority (FCA) defines a vulnerable customer as “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”.

This is a broad definition and doesn’t differentiate between potential vs actual vulnerability and permanent vs transient vulnerability. In our view, this is because the FCA wants vulnerable characteristics to be considered at all stages of the customer journey.

In the context of the COVID-19 global pandemic, fintechs may find that a significantly larger percentage of their customer base may be vulnerable – whether due to lost/reduced income, health issues (physical or mental), or additional caring responsibilities, just to name a few.

This is certainly in line with the FCA’s guidance, which has identified 4 key drivers of vulnerability:

1. Health – health conditions or illnesses that affect the ability to carry out day to day tasks;
2. Life events – major life events such as bereavement or relationship breakdown;
3. Resilience – low ability to withstand financial or emotional shocks;
4. Capability – low knowledge of financial matters or low confidence in managing money.

The FCA has also issued draft guidance on what is required to drive better outcomes for vulnerable customers. Key to this is embedding a lifecycle approach to vulnerability that:

• Understands the needs of vulnerable customers. This includes drivers, impacts and effects of vulnerability;
• Ensures staff have the requisite skills and capacity;
• Takes practical action like product and service design, customer service and communications; and
• Fosters continuous improvement including monitoring and evaluation.

While this provides a strong framework for you to consider vulnerability, what it means in practice will vary depending on your products or services and your potential and actual customer base. It will also need to consider any specific challenges customers are facing due to the COVID-19 global pandemic.

Australia’s position on vulnerability…

Vulnerability is not specifically regulated in Australia but there are a range of regulatory requirements/interactions that are relevant to vulnerability or touch upon vulnerability.

Competition

The Australian Competition and Consumer Commission (ACCC) issued a compliance guide for businesses dealing with disadvantaged or vulnerable customers in 2011. The guide doesn’t define who is a vulnerable customer but it does identify a range of characteristics and includes some high level principles and examples based on actual cases. These characteristics include:

• have a low income;
• are from a non-English speaking background;
• have a disability—intellectual, psychiatric, physical, sensory, neurological or a learning disability;
• have a serious or chronic illness;
• have poor reading, writing and numerical skills;
• are homeless;
• are very young;
• are old;
• come from a remote area; and/or
• have an Indigenous background.

While useful, the guidance is framed in the context of unconscionable conduct and misleading and deceptive conduct. It doesn’t take into account the broader concepts of fairness that underpin financial services and credit activities.

It is also worth noting that the ACCC has listed vulnerable and disadvantaged customers as an enduring priority in their Compliance & Enforcement policy & Priorities 2020. It will be interesting to see how this plays out in the context of COVID-19 and ASIC’s focus post-Royal Commission.

Design and distribution

ASIC’s new design and distribution obligations go some way towards addressing vulnerable customers of financial products. This is because it requires product designers to identify the target market for a product and ensure distribution (directly or indirectly) is limited to them. When determining the target market, product designers should identify any vulnerable customers and how the product caters to them. Implemented as intended, these obligations should ensure that products are fit for purpose and target the appropriate customers. This should shrink the potential vulnerable population somewhat but is not a cure all. Why? Because the right customers may acquire the product but nonetheless be vulnerable. It also doesn’t address the servicing of vulnerable customers.

ASIC priorities

In light of COVID-19, ASIC has changed its priorities and will (amongst other things) “heighten its support for consumers who may be vulnerable to scams and sharp practices, receive poor advice, or need assistance in finding information and support should they fall into hardship”.

ASIC’s focus on consumer vulnerability has now been captured in its Interim Corporate Plan 2020-21, which was released on 11 June 2020. In this report, ASIC acknowledges the increased risk and impact of consumer vulnerability in the context of the COVID-19 pandemic given:

• heightened economic uncertainty and widespread job losses;
• increased scam activity and misleading advertising targeting susceptible consumers;
• reliance on temporary relief from Government assistance, hardship arrangements and mortgage payment deferral;
• the widespread use and proliferation of credit;
• the risk of under insurance given the concurrent increase in insurance premiums and reduction in wages; and
• early access to superannuation.

While ASIC’s focus on vulnerability is contextual and targeted, it does indicate ASIC has vulnerability considerations front of mind in its supervision of financial services and credit more broadly. It will be interesting to see what ASIC does in the space post pandemic and if they will build on any lessons learned.

Complaints

The Australian Financial Complaints Authority (AFCA) has, since inception, been assessing complaints from a fairness and vulnerability perspective, particularly in the credit space. From what we have seen, AFCA are applying industry codes as best practice, even if the provider is not a member and not required to be a member. This is an interesting development and, in our view, AFCA is likely to drive much of Australia’s approach to vulnerability.

Best interests

Financial advisers have a duty to act in their clients’ best interests. If a client is vulnerable and a financial adviser doesn’t ask the right questions or appropriately act on their client’s responses, it will be difficult for them to demonstrate they discharged the best interests duty. Financial advisers are generally in a sound position to uncover vulnerability – given the nature of their relationship, service scope and contact points. The fact find and review process present an opportune time for financial advisers to identify relevant vulnerabilities for clients.

Responsible lending

Responsible lending obligations require credit providers to consider any known vulnerabilities identified in the application process. It doesn’t prevent them from lending to vulnerable customers. Providers should have robust processes in place to identify relevant vulnerabilities. However, these processes may not identify customer vulnerability. Why? Because it requires full and transparent disclosure about matters consumers may not think relevant or want to discuss.

Industry codes

We have also seen industry develop its own codes of practice. For example, the draft Buy Now Pay Later Code, General Insurance Code of Practice (aiming to be operative 1 July 2020) and Banking Code of Practice (commenced 1 March 2020). These codes all list common vulnerability characteristics and build in a range of protections for vulnerable customers. Most require identification of vulnerable customers, adequate training of staff and customer support (guidance, referrals or product / service changes). While a great step forward, these protections are high-level commitments. You will need to flesh out what it means for your product or service and broader customer journey.

This will be an interesting exercise for fintechs as many have frictionless customer onboarding and often have minimal human-to-human touch points in the customer journey. What this means for fintechs in the context of a global pandemic is also untested and unchartered. Key will be having processes in place that identify vulnerable customers early on and respond appropriately.

How can you identify vulnerability in the customer journey?

Think about your:

1. Product features: Are they fair? Can they be customised? What levers can be used for different customers?
2. Service touch points: Are there key touchpoints where you should ask customers to give you information? Will customer answers, behaviours or data raise red flags for you?
3. Data: What data do you collect? What inferences can be made from that data? Can you incorporate AI?
4. Assessments: Do you conduct any customer pre-vetting, risk or suitability assessment? Do you assess customers on an ongoing basis? How can you extend these to cover vulnerability?
5. Training: How will you empower your staff to identify and respond to vulnerability?
6. Recourse: What measures do you have in place for vulnerable customers?
7. Review: What processes do you have in place to review your practices and build a culture of continuous improvement?

Vulnerability practices are still at an early stage. It will take time and many iterations before businesses can better cater and respond to customer vulnerability. COVID-19 provides fintechs with a greenfield opportunity to design and test vulnerability measures in a heightened environment with a potentially significant vulnerable customer population. If you haven’t thought about it yet, it is important that you consider vulnerability now in terms of your product/service design, distribution and broader customer journey.

By Michele Levine

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The Australian regulatory landscape is complex and can favour incumbents and the big end of town.

So you’ve got an awesome idea, MVP or full product/service offering and are eager to disrupt the market… but don’t know how you’re regulated or how to comply?

I’m not surprised! The Australian regulatory landscape is complex and can favour incumbents and the big end of town. Start-ups often find regulatory requirements confusing and an impediment to challenging the status quo and doing things better, different, faster and in a more customer-centric way.

It can all seem bigger than Ben-Hur at times. Don’t fear – this blog has your back! It looks at the two things you can do from a regulatory perspective to narrow down what requirements apply to you and ensure you comply on day 1.

Step 1: Access expert knowledge

There are some places you can access expertise:

• Your local start-up community: Incubators, hubs and VC funds have broad and deep experience in the fintech space. They may also know whether your business may be regulated and who you can contact for help.
• ASIC Innovation Hub: While they can’t tell you whether your business will be regulated, the ASIC Innovation Hub can point you in the right direction. This may involve directing you to the relevant ASIC guidance, which is helpful but only takes you so far. Why? Because most ASIC guidance requires you to make a judgement call about whether it applies to your situation. This often requires specialist legal or compliance expertise.
• APRA and AUSTRAC: These regulators don’t have dedicated fintech hubs but they can give you helpful guidance on regulatory requirements and compliance.
• Specialist lawyers and compliance experts: While they’re not usually the first port of call, specialists can help you work out whether your business is regulated and how. The earlier you bring them into the fold the better as their advice can shape your offering and go to market strategy. By advising you on what regulations apply and what strategies will work best for your business, you can avoid having to make major changes to your business structure, product/service model and distribution channel.

Step 2: Know your options

If your business will be regulated and needs a regulatory licence, approval or registration, you have a number of options:

1.  Get your own licence: This option gives you the greatest flexibility and control but can be quite costly and time consuming. The application process can be quite finicky and detailed. It can also take up to 6 – 12 months to get an Australian financial services licence (AFSL) and 4 – 6 months for an Australian credit licence (ACL).

2.  White label someone else’s product: Partner with an incumbent and act as their distributor. You may need to be appointed as a representative or access some other option. This option works well for banking, insurance and super products. It’s also a fast way to market with minimum regulatory investment. The main con is that you may find an incumbent’s regulatory framework is not fit for purpose and can be quite onerous. This can be a challenge if you’re looking for a healthy risk appetite, agility, autonomy and flexibility.

3.  Become a representative: This is where you act on behalf of someone who already has a licence. It can work for both financial services and credit but the mechanics work slightly differently. Similar to option 2, this doesn’t provide you much flexibility and relies on a helpful, resourceful and clued up licensee.

4.  Access an exemption: There are some exemptions for financial services and credit activities. For example, the intermediary authorisation which is available to product issuers dealing through someone else who holds an AFSL. These exemptions may let you establish your business and build experience and momentum before getting your own licence.

5.  ASIC Regulatory Sandbox: Recent changes have expanded the scope of the regulatory sandbox. They allow fintechs to test certain products and services without needing to hold an AFSL or ACL for a limited period. To date, this option hasn’t been used much. Hopefully, the recent expansion will change this. A couple of caveats with this option: First, it isn’t a long term solution. It is designed for testing. So if you’re looking at alpha or beta testing, this option may work for you. If you’re looking for a longer term solution, this is not it. Second, it also has limited utility – not all products/services are covered and there are financial exposure and customer limitations that will limit activities and may impact your product lifecycle and funding runway.

The regulatory space can be tricky for start-ups. It would be great if it was designed to encourage and foster self-help, but we’re not there yet. In the meantime, regulatory geeks like us can help you work out if and how your business is regulated so you can get to market quickly and seamlessly.

By Michele Levine

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Regulation of the payments ecosystem is overly-complicated.

Payments are a central part of everyday life but the regulations that govern them are complex. If Australia is to be a leader in the fintech space, it’s time for a holistic review of our regulatory framework for payments.

Digital payments are on the rise

Every purchase or sale we make requires some form of payment. With an increasingly digital native population and the globalisation of marketplaces, we’re seeing a move away from cash to digital payment options. Payments, wallets and supply chain related services are now the 4th largest sector by fintech type and account for 17% of the Australian fintech industry according to the EY FinTech Australia Census 2019.

In the past 5 years, we’ve seen a proliferation of technology in the payments space including:

• Buy now pay later products (like Afterpay, Zip, Latitude and Open Pay);
• Digital wallets (Apple Pay, Samsung Pay and Android Pay);
• Real-time payment applications (Beem It);
• Global payment platforms (Airwallex, OFX and Transferwise); and
• Crypto tokens (Bitcoin and Ethereum).

Central banks are even considering digital currencies with Sweden assessing the case for an e-krona. We are also seeing large tech companies launching stable coins e.g. Facebook’s Libra.

Regulation of the payments ecosystem is overly-complicated

The regulation of payments in Australia is fragmented and complicated. There are 3 different regulators that supervise discrete aspects of the payments ecosystem:

1. Reserve Bank of Australia (RBA): Regulates credit and debit payment systems and some aspects of purchased payment facilities.
2. Australian Prudential Regulation Authority (APRA): Regulates banking activities and purchased payment facilities.
3. Australian Securities and Investments Commission (ASIC): Regulates non-cash payment facilities.

Unfortunately, these regulatory regimes do not neatly dovetail into each other. In some cases, they also rely on outdated guidance that doesn’t necessarily make sense in a digital world.

Our complex regulatory regime makes it difficult for new entrants like fintechs to challenge the status quo. In our experience, fintechs also often aren’t aware of all the regulatory requirements that apply to payments and what it means for their technology and business.

Given the important role payments play in our economy and for fintechs, our regulatory landscape needs to be re-designed.

It’s time for the regulatory system to change

There has been some progress in this space with the Council of Financial Regulators conducting a review of retail payments regulated in relation to stored value facilities in September 2018. It covered purchased payment facilities, non-cash payments facilities and the interaction between the 3 regulators. Key focus areas were:

• Regulatory simplification, transparency and clarity;
• Ensuring technology neutrality and future proofing; and
• Promoting innovation and competition whilst balancing consumer protection and system robustness.

The review has been completed but the report has not yet been released to the public. Watch this space!

In addition, the RBA released an issues paper seeking feedback on retail payments regulation in Australia in November 2019. The paper outlines recent developments in the space, the RBA’s regulatory actions, global reforms and key issues to consider to enhance competition and efficiency in the designated payment schemes.

Hopefully, the combined outcome of both reviews is that a broader, considered and measured review of payments in Australia is completed to ensure we have a regulatory framework for the future. In my view, key to achieving this is asking these questions:

• Should there be a single dedicated regulatory framework for payment systems?
• Should there be a single dedicated regulator for payment systems?
• Should the regulatory mandate promote competition and innovation and how should this be balanced with consumer protection?
• How should the payments regulatory framework be designed to cater for future developments that we haven’t contemplated yet?

Given the fast paced changes and global competitiveness in the payments space, the quicker we solve this the better. Hopefully, the Senate Select Committee on Financial Technology and Regulatory Technology will pick this up as part of their inquiry. Submissions closed on 31 December 2019.

I believe Australia can build a best in breed regulatory framework for payments by drawing on the experience of other jurisdictions, like the United Kingdom.

By Michele Levine

The post Cashing in on payments! appeared first on AdviserVoice.

Michael Sim

New whistleblower protections expand who is protected and what they can disclose. This regime applies to regulated companies and financial service providers including banks, life companies, general insurers and superannuation funds.

More people are now protected whistleblowers

The new regime came into force on 1 July 2019 and creates the concept of an ‘eligible whistleblower’. This expands who can make a protected disclosure.

Under the old regime, just your current employees, officers and contractors were protected. Now protected disclosures can be made by your current and former:

• Employees;
• Officers;
• Contractors or suppliers (whether they were paid or not);
• Employees of contractors or suppliers; and
• Even a spouse or relative of any of the above. Yes, you read that correctly.

If a person qualifies as an eligible whistleblower, their motivation for making a protected disclosure isn’t relevant. An eligible whistleblower just needs to meet the requirements for the type of disclosure they are making.

More types of disclosures can be made

The type of disclosures that can be made by whistleblowers has been expanded to include:

• Ordinary disclosure: Where the whistleblower has reasonable grounds to suspect the information concerns misconduct or an improper state of affairs or circumstances about the organisation or a related company;
• Public interest disclosure: Where the whistleblower believes it’s in the public interest to tell the press or a member of parliament. They can do this if they have reasonable grounds to believe that no action has been taken to address the issues in an ordinary disclosure within 90 days; and
• Emergency disclosure: If the whistleblower has reasonable grounds to believe that the information concerns a substantial and imminent danger to the health or safety of someone or to the natural environment.

Protected disclosures can be made to a wide range of people

Protected disclosures can now be made to:

• ASIC, APRA, and other prescribed Commonwealth authorities;
• Officers or senior managers of the organisation or related companies;
• Auditors or actuaries of the organisation or related companies; or
• People authorised by the organisation to receive disclosures. This may include a hotline or a lawyer in certain circumstances.

There are more protections for whistleblowers

Whistleblowers also have more protections including:

• Anonymity;
• Immunity against being prosecuted; and
• Any detriment caused by victimisation.

Anyone who breaches these protections may face substantial civil or criminal penalties.

If you’re a public or large proprietary company, you’ll need to develop and implement a whistleblower policy by 1 January 2020. ASIC is currently getting feedback on its draft Consultation Paper CP 321 which provides guidance for whistleblower policies.

If you haven’t done so already, you’ll also need to think about what changes you need to make to your governance, risk and compliance framework for this new whistleblower regime.

By Michele Levine, Senior Associate, and Michael Sim, Lawyer

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