ASIC puts payday lending industry on notice to lift standards

ASIC today released a report Payday lenders and the new small amount lending provisions that found that payday lenders need to improve compliance with some of the key consumer protection laws operating in the industry. As at December 2014 there were approximately 1,136 Australian credit licensees that identified that they operate in the payday lending industry (out of a total of 5,842 Australian credit licensees). This figure has declined slightly (by about 6%) over the last 12 months.

Nine of the 13 payday lenders in the review have also diversified their business since the new cap-on-costs provisions commenced. Other business interests and products offered identified in the review include:

  • medium amount loans;
  • other credit contracts;
  • cheque cashing;
  • gold buying;
  • purchasing delinquent debts;
  • secured loans; and
  • pawnbroking.

ASIC’s review of 288 consumer files for 13 payday lenders – who are responsible for more than 75 per cent of payday loans made to consumers in Australia – found some lenders engaging in conduct that risks breaching responsible lending obligations. 187 recorded the consumer’s purpose for the loan.

PayDayPurposeWhile ASIC’s review found compliance with some rules was working, it also found that payday lenders are falling short in meeting important new obligations introduced as part of the small amount lending reforms in 2013.

ASIC’s review found particular compliance risks around the tests for loan suitability, which must be considered when the consumer has multiple other payday loans or is in default under a payday loan.

The review also identified concerns where payday lenders set their loan terms at 12 months or more, thereby charging the consumer more fees, in circumstances where a consumer had requested a shorter term and paid the loan back in that shorter time.

The report also found systemic weaknesses in documentation and record keeping, including around the issue of the consumer’s objectives and needs.

ASIC’s review found better levels of compliance with some regulations, including the requirement to provide a warning about alternative credit options and the income protection rules for Centrelink recipients.

ASIC’s review follows a series of enforcement actions against payday lenders, including the recent Cash Store decision which saw penalties of almost $19 million handed down by the Federal Court for irresponsible lending and unconscionable conduct.

Following the work and the conduct that has been uncovered ASIC has commenced investigations and further follow-up work in certain cases, and will consider enforcement action or other regulatory action.

ASIC became the national credit regulator in 2010. Tighter consumer credit rules for small amount lending were introduced in 2013.

ASIC has focused on three areas of misconduct in the payday lending sector:

  • irresponsible lending
  • avoidance through business models that attempt to circumvent the law, and
  • unfair fees and misleading advertising.

Since 2010, ASIC enforcement action has resulted in close to $2 million in refunds to more than 10,000 consumers who have been overcharged when taking out a payday loan. Payday lenders have also been issued with 13 infringement notices totalling approximately $120,000 in response to ASIC concerns about their compliance with the credit laws.

ASIC notes the 2013 small amount credit reforms will be independently reviewed after 1 July 2015. ASIC will continue its focus on enforcing the current provisions and raising industry standards.

ASIC ‘s Market Supervision Activity

ASIC today published its ninth report on the supervision and surveillance of Australian financial markets and market participants. The report highlights ASIC’s direct engagement with market participants to address concerns about market conduct.

During the relevant period, there were 19,375 Trade surveillance alerts alerts compared to 17,091 alerts in the previous period.

For example, using the improved functionality of ASIC’s new market surveillance system, Market Analysis and Intelligence (MAI), a persistent pinging strategy was identified in an ASX20 security trading in ASX Centre Point and Chi-X hidden public dark venues. Following intervention by ASIC, that behaviour has now ceased. Pinging is the practice of using the placement of very small orders to test if there is liquidity.

Using MAI, surveillance analysts also identified a recurrence of hacking of retail online share trading accounts. ASIC has worked closely with the firms involved to implement strategies to disrupt this activity.

Further, between July and December 2014, discussions with market participants led to the amendment of order execution methods and the review of trading algorithms on 26 occasions.

The report also highlighted the impact of the improved functionality of ASIC’s new market surveillance system, MAI. The system has allowed ASIC to conduct very sophisticated analysis in very short periods of time.

ASIC is concerned about the high proportion of general advice compared to personal advice, particularly by full-service brokers. They intend to focus more efforts on reviewing the provision of advice by market participants, whether it is being categorised correctly as personal or general advice, and whether the relevant obligations are complied with appropriately. This may include a focus on management oversight and adviser training.

ASIC’s compliance reviews have identified deficiencies with the provision of personal advice and the requirement to provide a clear, concise and effective Statement of Advice. For example, we identified market participants that had not provided sufficient information to clients regarding the basis on which the advice was given—suggesting that inadequate consideration may have been given to clients’ circumstances, goals and objectives.

Other future areas of focus for ASIC, include the Market Entity Compliance System, which will enhance the way market participants and operators interact with ASIC. Other aspects of market conduct that ASIC will be paying close attention to in the coming six-month period include a thematic review of crossing systems which will assess how crossing system operators are meeting their regulatory obligations, targeted compliance reviews of client money obligations, and further analysis into the handling of confidential information.

They are also currently reviewing analysts’ re-ratings for the last four years and comparing them to the timing of publicly-available information. This review may identify potential leakages of confidential information that we will need to further investigate.

Groupthink Stems From The Council of Financial Regulators

Behind the scenes, it is the mysterious Council of Financial Regulators which is coordinating activity across the Reserve Bank, APRA, AISC and Treasury. This body, is the conductor of the regulatory orchestra, and although formed initially in 1998, it has only had an independent website since 2013.  It is the coordinating body for Australia’s main financial regulatory agencies. It is a non-statutory body whose role is to contribute to the efficiency and effectiveness of financial regulation and to promote stability of the Australian financial system. The Reserve Bank of Australia (RBA) chairs the Council and members include the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), and The Treasury. The Council of Financial Regulators (CFR) comprises two representatives – the chief executive and a senior representative – from each of these four member agencies.

The CFR meets in person quarterly or more often if circumstances require it. The meetings are chaired by the RBA Governor, with secretariat support provided by the RBA. In the CFR, members share information, discuss regulatory issues and, if the need arises, coordinate responses to potential threats to financial stability. The CFR also advises Government on the adequacy of Australia’s financial regulatory arrangements. A formal charter was only adopted on 13 January 2014.

The Council of Financial Regulators (CFR) aims to facilitate cooperation and collaboration between the Reserve Bank of Australia, the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission and The Treasury. Its ultimate objectives are to contribute to the efficiency and effectiveness of regulation and to promote stability of the Australian financial system.

The CFR provides a forum for:

  • identifying important issues and trends in the financial system, including those that may impinge upon overall financial stability;
  • ensuring the existence of appropriate coordination arrangements for responding to actual or potential instances of financial instability, and helping to resolve any issues where members’ responsibilities overlap; and
  • harmonising regulatory and reporting requirements, paying close attention to the need to keep regulatory costs to a minimum.

So, given the intended independence of the RBA, from Government, there is an important question to consider. How can this be seen to be true? More likely, we think there is significant potential for groupthink. In addition, no minutes of discussions are made public. We think its time for greater transparency and openness.

Sunlight is said to be the best of disinfectants; electric light the most efficient policeman” said U.S. Supreme Court Justice Louis Brandeis. We agree.

Backdoor Listing Up, Says ASIC

ASIC has today published the second report in its series on the regulation of corporate finance issues in Australia.

The report, which covers the period July to December 2014, provides companies and their advisers with insights into ASIC’s regulatory approach in the corporate finance sector and aims to assist them with their associated legal and compliance obligations.

ASIC is responsible for the regulation and oversight of corporate finance activity in Australia, with a particular focus on corporate transactions such as fundraising, takeovers, schemes of arrangement, share buy-backs, compulsory acquisitions, employee incentive schemes and financial reporting. The Corporations and Emerging Mining and Resources (EMR) teams are responsible for regulating disclosure and conduct by corporations in Australia in these areas.

In this period there was a 39% increase in the number of disclosure documents lodged with ASIC (compared to the period 1 January to 30 June 2014, and a slight increase in applications for relief from Ch 6D. The table below depicts the top 10 public fundraising transactions by value of the offer based on disclosure documents lodged with ASIC in this period. Hybrid securities make up a notable portion of these fundraisings.

ASIC-Top-TenWhen reviewing prospectuses in this period, among other things, ASIC responded to the following trends:

  1. financial information (including pro-forma financial information) that is not sufficiently complete or adequately reviewed by a third party such as an auditor;
  2. an increase in backdoor listing prospectuses;
  3. poor quality information about companies operating in an emerging market; and
  4. an increase in the number of listed investment companies seeking quotation.

Financial disclosures

Financial disclosures are of significant concern to ASIC, as they paint a picture of the history of the performance of the company and effectiveness of management. Financial information, both statutory and pro forma, is essential to informing investors about the past performance and future prospects of the company. Some of the concerns with the disclosure of financial information we identified include:

  1. pro-forma adjustments described as one-off events;
  2. a lack of prominent disclosure of material differences between statutory and pro-forma financial results; and
  3. multiples not being included for all forecast

Backdoor listings

In this period ASIC reviewed disclosure by 30 companies seeking admission to ASX by way of a backdoor listing—that is, a company seeking to access capital by selling their business into a company that is already listed on an Australian exchange.

Businesses offering web-based products and services or start-up technologies are the most common type of business currently seeking admission by way of backdoor listing. These often have unique businesses requiring technical explanation of a high proportion of intangible assets in their financial statements. With these characteristics it is difficult for investors to make an informed decision unless:

  1. considerable care is taken in explaining the business without the use of jargon; and
  2. a justification for the valuation of intangible assets is provided.

ASIC raised concerns with 22 (73%) of these offer documents, with concerns being addressed by way of supplementary disclosure. In six instances ASIC made interim stop orders in relation to backdoor listing prospectuses; two stop orders were revoked, one had a final stop order made and three prospectuses are still subject to those interim stop orders.

Other concerns identified in a number of backdoor listing prospectuses include:

  1. insufficient financial disclosure, including a lack of operating history, lack of audited financial information, and disclosure of information presented other than in accordance with accounting standards (non-IFRS financial information);
  2. insufficient disclosure of a company’s business model and use of proceeds;
  3. disclosure of directors’ history not consistent with our policy in disclosure of directors’ history not consistent with our policy in RG 228; and
  4. risk disclosure not adequate or appropriately tailored to a company’s circumstances.

Half of the businesses seeking a backdoor listing come from a foreign jurisdiction, with the majority of these from an emerging market. ASIC continues to consider the challenges facing these entities when reviewing a prospectus, and will raise concerns where we consider disclosure is inadequate or misleading.

With the slowdown in the mining sector ASIC expects backdoor listing activity to remain strong.

Listed investment company disclosure

In the last year ASIC  saw an increase in the number of initial public offerings of listed investment companies. These are entities that seek to make a return for investors through their investment activities rather than through operating a business. This raises a few disclosure concerns unique to listed investment company prospectuses.

Firstly, listed investment companies often have similar characteristics to a hedge fund, and may use complex strategies like leverage, short selling and derivatives. These can be quite challenging to explain, and ASIC is concerned that retail investors may struggle to understand how a company intends to make money—particularly when jargon is used excessively. If a listed investment company has similarities to a hedge fund, then it should make disclosure that is similar to that provided by a hedge fund.

Another feature of listed investment companies is that they can have an external manager that may be a related party. The fees charged by the external manager can have a material impact on investors’ returns and, where this is the case, the prospectus should give meaningful disclosure. For example, in some circumstances it may be more appropriate to include a worked example or explain the practical effect of a fee, rather than just cite a complex formula. Where a performance fee formula means that investors’ returns are capped at 10%, it is not sufficient to disclose the formula. The prospectus must clearly and prominently disclose that investors’ returns will not exceed 10%.

Finally, listed investment company prospectuses often seek to include disclosure setting out the past performance of other entities managed by their manager. Concerns about these disclosures are commonly raised by ASIC.

NAB Financial Advisors Under The Microscope

According to the Sydney Morning Herald,

“The National Australia Bank has quietly paid millions of dollars in compensation to hundreds of clients given what it considers inappropriate financial planning advice since 2009.

The bank is the latest institution to face disturbing revelations of misconduct in its financial planning division, with a Fairfax Media investigation uncovering instances of forgery, “rogue advisers” and multiple sackings inside its financial advice arm.

A cache of confidential internal documents obtained by Fairfax Media reveals that, according to NAB, 31 of its financial planners were terminated, suspended or had their resignations “ensured” due to conflicts of interest, inappropriate advice, inappropriate practices or repeated compliance breaches

Disturbingly, the document states that these instances were not detected by the bank’s internal controls, but through client complaints or queries by authorities”.

This is further evidence that the financial advice sector is not up to scratch, and that despite the FOFA reforms (which has been subject to various government attempted revisions) we think that there is still room for significant improvement in the regulatory framework, practice and culture relating to providing good financial advice in Australia, with a focus on doing the right thing for clients. The claim that “its just a few bad apples” becomes less credible as more organisations are implicated. Both ASIC and the recent FSI report highlighted significant structural problems.  Remember the superannuation balances of Australians now stand at more than $1.93 trillion.

We think that the concept of general advice should be removed, and advisors should not be able to receive any indirect financial benefit from the advice they provide. Separately, financial products can be sold, provided all relevant facts, and costs are disclosed. The two – advice and product sales, should be separated completely. You can read my earlier discussions here.

ASIC issues stop order on pre-prospectus publications by Bitcoin Group Limited

ASIC has placed a stop order prohibiting Bitcoin Group Limited (a proposed Bitcoin ‘miner’ in Australia) from publishing any statements concerning its intention to make an initial public offering of its shares until the lodgement of a prospectus.

ASIC’s concerns relate to publications posted by the company via a social media application ‘Wechat’ seeking expressions of interest from potential investors to subscribe for shares if there is a proposed listing on the Australian Securities Exchange. The publications were made before Bitcoin Group Limited was registered as an Australian company by ASIC and before the lodgement of a formal disclosure document (e.g. a prospectus). ASIC’s understanding is that the company particularly targeted potential investors from the Chinese community.

ASIC Commissioner John Price said, ‘ASIC will often review pre-prospectus advertising or publicity to ensure legal requirements are being met. This is because any statements made about a potential offer may influence the investment decisions of consumers who will not have the benefit of all material information that would be included in a prospectus.’

‘ASIC expects companies to be fully aware of their obligations regarding advertising or publicity that occurs before making a regulated disclosure document available to investors. If they do not observe these requirements, then ASIC will take necessary action so that investment decisions are made in a confident and fully informed environment.’

ASIC has taken the step of issuing a media release given the publicity raised by Bitcoin Group in relation to their intention to list on the ASX. In normal circumstances, the issuing of a stop order is made public on our website and in reference to the fundraising documents lodged with ASIC. On this occasion, no documents have yet been lodged with ASIC so we have issued a media release outlining our concerns and subsequent action.

ASIC’s action relates just to this company rather than Bitcoin generally.

Financial Adviser Directory Will Be Active End March 2015 – ASIC

ASIC, is well advanced with work on an industry-wide public register of financial advisers to be up and running at the end of March according to an update released today.

The register will contain details of all persons employed or authorised – directly or indirectly – by Australian financial services (AFS) licensees who are authorised to provide personal financial advice to retail clients on Tier 1 (investment) products. Tier 1 products are financial products other than basic banking products, general insurance products or consumer credit insurance products or a combination of any of those products.

It is intended the register will be accessible online from ASIC’s MoneySmart website from 31 March 2015.

The Government had announced plans to establish the register in October 2014, and intends to make regulations relating to the register in coming days. ASIC is working with licensees and authorised representatives to assist them to provide the required information in accordance with the timetable in the planned regulations.

ASIC has a dedicated webpage www.asic.gov.au/far and encourages all licensees to subscribe via this webpage to receive email correspondence about the register.

ASIC Provides Relief for 31-day Notice Term Deposits

ASIC today released a class order to facilitate term deposits that are only breakable on 31 days’ notice.

The Class Order [CO 14/1262] gives relief for 18 months to enable 31-day notice term deposits of up to five years to be given concessional regulatory treatment as basic deposit products under the Corporations Act (the Act). This is intended to give Government the opportunity to consider law reform.

As part of the Basel III reforms, the Australian Prudential Regulation Authority (APRA) will implement the liquidity coverage ratio (LCR) requirement from 1 January 2015, as set out in Prudential Standard APS 210 Liquidity (APS 210).

Term deposits that require 31 days’ notice for early withdrawal will receive favourable liquidity treatment under APS 210.

The new class order will provide industry with certainty that these sorts of term deposits will be treated as basic deposit products, subject to meeting the relief conditions.

The class order formalises ASIC’s previous conditional no-action position on 31-day notice term deposits. The relief conditions are about ensuring consumers can make confident and informed decisions when investing in the new type of term deposit.

They also help consumers understand the new requirement to give 31 days’ notice to ‘break’ their term deposit and ensure this is considered when the term deposit rolls-over.

ASIC will continue to work with industry to help ADIs meet the relief conditions, including carryover of arrangements from the previous no-action position to the class order, while ensuring consumer protection.

Background

The definition of basic deposit product in section 761A of the Act does not specify the period of notice an ADI may require a depositor to give in order to make an early withdrawal from a term deposit of up to two years.

It is therefore unclear what notice period for withdrawal could be imposed that is consistent with the characterisation of a term deposit of up to two years as basic deposit product. ASIC’s view is that a notice period as long as 31 days for early withdrawal is unlikely to meet the definition of basic deposit product.

Section 761A of the Act provides that term deposits of between two and five years must allow an early withdrawal without prior notice in order to meet the basic deposit product definition (except for the special provision for mutual ADIs contained in reg 7.1.03A of the Corporations Regulations 2001).

 

Half Of Households Not Confident They Get Best Financal Deals – ASIC

According to a recent ASIC survey, about half of Australians are NOT confident they are getting the best deal when making important financial decisions. They found that:

  • 57% of population with credit card (7,112,000) are NOT confident that they are getting the best deal on their credit cards
  • 45% of population with a mortgage (3,609,000) are NOT confident that they are getting the best deal on their mortgage
  • 48% of population who have superannuation (7,107,000) are NOT confident that they have it sorted.

Australians don’t often seek independent expert advice when making important financial decisions.

  • 84% of people with credit cards did not seek independent expert advice on the matter
  • 54% of people with a mortgage did not seek independent expert advice on the matter
  • 67% of people who set up a super did not seek independent expert advice on the matter

This demonstrates that many consumers don’t know where to go for independent information or how to make the best choice and find out what’s important in choosing a credit card, mortgage or superannuation. Nearly all Australians (92%) think it would be useful if all Australians had access to a free and independent source of help on financial matters such as managing their money or how to reach their financial goals. Looking at the product specific findings:

  • Credit cards : 57% (7,112,000) of Australians are unsure or don’t think they have the best deal on their credit cards. 84% of people (9,540,000) who have credit cards did not seek independent expert advice on the matter. Of those who have credit cards:
  • GENERAL: 84% of people with a credit card get no independent advice on credit cards yet 25% are confident they didn’t get a good deal; and 33% are either NOT confident, or don’t know if they got a good deal
  • YOUTH: Less 25 to 49 year olds (37%) are confident they are getting the best deal on their credit card than 16-24 year olds (42%). The highest numbers of confident people are in the 65+ age group but still 45% of them are unsure
  • AN ISSUE FOR 25 to 49 YEAR OLDS: Less 25-49 year olds than any other age group are confident that they think they’re getting the best deal out of their credit cards. Reasons for this are likely to be due to a very high proportion of the 25-49 year age group have a mortgage. Only 27% don’t have a mortgage compared to 72% of 50+ or 87% of 16-24. Hypothesis they may be more aware of the LOW rate of mortgages compared to credit cards, or that they should bundle CC into mortgage offer. Other age group’s confidence that they are getting the best deal on their credit cards is: 65+ are 55%; 50+ are 49%; 16-24 are 42%; 25-49 are 37%. (Average is 43%, so 25 to 49s are below average).
  • STATE: More people in SA (32%) are confident that they DON’T have a good deal on their credit card, than in any other state. Less Victorians/Tasmanians likely to think they don’t have a good deal (22%)
  • GENDER: Women feel less confident then men that they are getting the best deal on their credit card (47%) to (53%)
  • ADVICE: Among those who had sought independent expert advice when getting a credit card half (54%) were confident that they were getting the best deal possible on their credit cards, compared to 34% of those who didn’t seek independent advice.
  • Mortgage: With 46% of people with a mortgage (3,609,000) NOT confident that are getting the best deal on their mortgage, there is a large portion of the population that lacks this assurance. Over half those with mortgages did not seek independent advice (54%). Young first home buyers seek less advice on mortgages than any other age group and are the least confident that they got the best deal on their mortgage. 65% of 18-24 year olds with a mortgage say they’re unsure or don’t think they got the best deal on their mortgage. Conversely, 25-49 year old home buyers were the most likely to seek independent advice (56%) and are more confident than any other age group that they got the best deal on their mortgage. People living outside capital cities were less likely to have sought independent expert advice when choosing a mortgage (37% vs 52%)
  • YOUTH: Fewer 16-24 year olds (35%) are confident they got the best deal on their mortgage, compared to any other age group. 25 to 49 year olds (57%) are highest. Average is 55%
  • YOUTH: Far more 16-24 year olds (36%) are confident they have did NOT get the best deal on their mortgage compared to 20% for 25-49 year olds. Average is 21%
  • YOUTH: Yet fewer 16-24 year olds (27%) than any other age group sought independent advice about their mortgage. Average is 46%; 25-49 year olds (56%); 50+ are 31% and 65+ are 23%
  • 25 to 49 YEAR OLDS: More 25-49 year olds (56%) got advice than any other age group, compared to the average (42%)
  • ADVICE: 54% of people who have a mortgage did not seek independent advice.
  • Superannuation: Approximately half of Australians (48% or 7,107,000) are NOT confident they have their super sorted out. Though this statistic improves with age, there are still 29% of the population (1,505,000) aged 50+ who have NOT sorted their super or don’t know if it is. 67% of people (9,413,000) who last joined a superannuation fund did not seek independent expert advice. But among those that did, 67% were confident their superannuation was sorted out, compared to only 49% of all Australians who feel this confidence. It can be inferred that those who got advice, received value and confidence out of it.
  • AGE: Under 50s were much less likely to be confident their super was sorted, compared to other age groups; 16-24 at 39% and 25-49 at 41% and 50+ at 72%
  • STATE: More people in Victoria//Tasmania are likely to feel confident they have their super sorted than in any other state. Average is 52%. Victoria/ACT is 57% compared to 48% across all other states
  • ADVICE: Under 50s were less likely to have sought independent expert advice when choosing a super fund, compared to other age groups; 16-24 at 14%, 25-49 at 28%. The average of ALL people whether or not they have superannuation is 26%. The average of those with super is 33%.

ASIC Cancels Registrations of SMSF Auditors

ASIC has cancelled the registration of 440 Self-managed superannuation fund (SMSF) auditors who did not undertake or pass a competency exam necessary to retain their registration. ASIC has also disqualified two SMSF auditors whose application for registration had overstated the number of SMSF audit reports issued by them in the preceding 12 months, thereby avoiding the requirement to sit the competency exam. Of the 440 auditors whose registration was cancelled, 373 did not attempt the exam and 67 did not pass the exam. Auditors were given up to two attempts to pass the exam and ASIC extended the period to pass the exam to 31 August 2014.

Commissioner Greg Tanzer said, ‘As the SMSF sector continues to grow in popularity with Australian investors, it is critical that SMSF auditors play their key gatekeeping role. ASIC will continue to administer the registration process to assure Australians that SMSF auditors at least meet base standards of competency and expertise’.

SMSF auditors who have had their registrations cancelled can re-apply for registration if they have passed the competency exam in no more than two attempts over the preceding 12 months. ASIC Regulatory Guide 243 Registration of self-managed superannuation fund auditors contains more information on how to apply to be an SMSF auditor. ASIC and the Australian Taxation Office (ATO) work closely together as co-regulators of SMSF auditors. The ATO monitors SMSF auditor conduct and may refer matters to ASIC for possible disqualification or suspension of their registration.

SMSF trustees/ members can check whether their auditor is registered by searching ASIC’s SMSF auditor register at connectonline.asic.gov.au. If a member/trustee is concerned that their SMSF auditor is not registered, they can report this to ASIC through our website at www.asic.gov.au.

From 1 July 2013, the Superannuation Industry (Supervision) Act 1993 (the Act) required all auditors of SMSFs to be registered with ASIC.  The objective was to ensure that all SMSF auditors met minimum competency requirements. New SMSF auditors are required to pass a competency exam in order to be registered.  However, SMSF auditors who applied to be registered before 1 July 2013 and were a registered company auditor or had audited 20 or more SMSFs in the preceding 12 months were not required to sit the competency exam. ASIC approved 7,038 of the SMSF auditor registration applications received before 1 July 2013 with 1,421 of these being registered on the condition that they pass the exam by 1 July 2014. The SMSF auditors with an exam condition had audited less than 20 SMSFs in the 12 months prior to their application and were not registered company auditors.