The writing’s on the wall: ASIC enforcement and focus
With the first half of the year now behind us, ASIC have recently released Report 585 (REP 585 – ASIC enforcement outcomes: January to June 2018).
This report highlights their activity in early 2018 (focusing on some notable successes) and looks forward to hint at what we can expect from them in the next six months.
No doubt you're already anticipating some engagement, but take a moment to reflect on the objectives and risks identified in ASIC’s Corporate Plan including:
- poor culture and conduct in financial services and credit, resulting in poor outcomes for investors and consumers;
- poor culture and conduct in markets, undermining market integrity;
- financial vulnerability of consumers at key decision points;
- misalignment of retail product design and distribution with consumer needs;
- inadequate risk management of technological change, including digital disruption and cyber threats; and
- cross-border businesses, services and transactions in a continually evolving regulatory environment.
ASIC’s powers will also be increasing in the near future.
Hopefully this signals the start of ASIC spending more time on enforcement and as the Regulator, receiving some much-needed support.
In the first half of 2018,
- there were 12 enforceable undertakings,
- 210 criminal charges laid,
- 68 people and companies were removed or restricted from providing financial services,
- $20.44 million levied in civil penalties,
- $256.69 million awarded in compensation and $7.57 million in community benefits.
Not bad for a Regulator unfairly criticised for being "missing in action".
ASIC have always considered SMSF auditors as ‘gatekeepers’, responsible players that are critical to the proper functioning of the financial system.
This explains their focused attention on SMSF auditors in early 2018.
Where ASIC determine non-compliance by an SMSF auditor, they have the power to:
- impose of vary conditions of the SMSF auditor’s registration;
- accept a court enforceable undertaking;
- cancel the SMSF auditor’s registration; or
- disqualify or suspend the auditor from being an approved SMSF auditor.
ASIC have stated that the second half of 2018 will include specific attention on:
- companies with poor corporate governance;
- undisclosed associations and substantial holdings in shares in public companies (including beneficial ownership tracing and corporate fraud);
- related party transactions involving public companies;
- poor financial reporting by listed companies and other public interest entities; • the quality of audits of listed companies and other public interest entities;
- insolvency practitioners and others who facilitate serious illegal phoenix activity and improper transactions in the face of insolvency;
- debenture issuers and other companies exposed to risk as a result of a declining property market; and
- company directors and officers who fail to stop their companies making illegal payments to officials of overseas governments.
Wealth Management Project
Since October 2014, ASIC have been examining the conduct of AMP, ANZ, CBA, NAB and Westpac.
An important area of focus for this project was the financial advisers who were providing poor advice. ASIC's performance has been examined and re-examined during the course of the Royal Commission, but there's little doubt that their activity makes a significant difference.
Whether they are adequately resourced or empowered is another question entirely. ASIC consider that their enforcement and administrative are important factor in maintaining consumer confidence.
Looking ahead (Financial Services):
- Responsible lending practices requiring credit licensees to make reasonable inquiries about a customer’s financial situation, including verifying customer information in the assessment of suitability for a loan;
- the responsibility of AFS licensees to monitor and supervise the advice of their financial advice representatives to ensure that the services covered by the licence are provided efficiently, honestly and fairly;
- the obligation of financial services firms to ensure that clients are provided services for which they are charged (REP 499 – Fees for no service); and
- the scope of the conflicted remuneration obligations on financial licensees and authorised representatives when they are providing financial advice (RG 246 – Conflicted and other banned remuneration).
ASIC do not seem to be slowing down in their pursuit of a “fair, strong and efficient financial system for all Australians.” With the new funding regime also introduced this year, there may be further encouragement for the subsectors that will be affected by the changes the most.
One final note
This year is going to be a big year.
ASIC's focus on trust, transparency, technology and accountability will require Licensees and advisers to transform their businesses to meet or exceed new expectations - in truth, to meet their current obligations.
The Royal Commission is exposing choices, cultures and conduct that will generate political, legal and regulatory responses.
The simple fact of the matter is that there is a popular belief, reasonable in the circumstances, that an active, consistent and predictable Regulator is required to police the financial services industry.
That has been our position for some time.
ASIC have clearly signalled their intention to be more active (and less amenable) and the Government has confirmed their willingness to increase ASIC's powers to ensure they are effective.
There is no doubt that change is coming and we'll help you better adapt to the changing regulatory environment.