Hold on, I'm Comin': ASIC & the BankingRC

 

focused on enforcement and litigation

Don’t you ever feel sad
Lean on me when times are bad
When the day comes and you’re down
In a river of trouble and about to drown
Just hold on, I’m comin’
Hold on, I’m comin’
— David Porter / Isaac Hayes "Hold on I'm Comin'"
 

In their February 2019 Update, ASIC responded to the Royal Commission’s Final Report. The Commissioner made 12 separate recommendations addressed to, or involving, ASIC.

ASIC have stated that they intend to ‘fully implement’ each of these.

There are 12 recommendations that are directed at ASIC, or where the Government’s response requires action now by ASIC, without the need for legislative change. ASIC is committed to fully implementing each of these,” ASIC said in a statement.

The 12 recommendations to which ASIC have committed to implementing are:


1.8 Amending the Banking Code

ASIC agree that the ABA should amend the Banking Code to provide that:

  • banks will work with customers who live in remote areas or who are not adept in using English to identify a suitable way for those customers to access and undertake their banking;

  • if a customer is having difficulty proving his or her identity, and tells the bank that he or she identifies as an Aboriginal or Torres Strait Islander person, the bank will follow AUSTRAC’s guidance about the identification and verification of persons of Aboriginal or Torres Strait Islander heritage;

  • without prior express agreement with the customer, banks will not allow informal overdrafts on basic accounts; and

  • banks will not charge dishonour fees on basic accounts.


1.10 - Definition of small business

The ABA should amend the definition of ‘small business’ in the Banking Code so that the Code applies to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million.


1.13 – Charging default interest

ASIC agree that the ABA should amend the Banking Code to provide that, while a declaration remains in force, banks will not charge default interest on loans secured by agricultural land in an area declared to be affected by drought or other natural disaster.


1.16 – Banking Code

In respect of the Banking Code that ASIC approved in 2018, the ABA and ASIC should take all necessary steps to have the provisions that govern the terms of the contract made or to be made between the bank and the customer or guarantor designated as ‘enforceable code provisions’.


4.9 – Enforceable code provisions

As referred to in Recommendation 1.15, the law should be amended to provide for enforceable provisions of industry codes and for the establishment and imposition of mandatory industry codes. In respect of the Life Insurance Code of Practice, the Insurance in Superannuation Voluntary Code and the General Insurance Code of Practice, the Financial Services Council, the Insurance Council of Australia and ASIC should take all necessary steps, by 30 June 2021, to have the provisions of those codes that govern the terms of the contract made or to be made between the insurer and the policyholder designated as ‘enforceable code provisions’.

This is a key component of accountability and a recommendation that ASIC strongly support.


2.4 – Grandfathered commissions

Grandfathering provisions for conflicted remuneration should be repealed as soon as is reasonably practicable.

Given that ASIC routinely link commissions with inappropriate advice, their support of this recommendation is entirely predictable.


2.5 – Life risk insurance commissions

Commissioner Hayne recommended that when ASIC conducts its review of conflicted remuneration relating to life risk insurance products and the operation of the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, ASIC should consider further reducing the cap on commissions in respect of life risk insurance products.

Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.

ASIC’s position is consistent with their conclusions from REP 587 and REP 591.


4.4 – Cap on commissions

ASIC should impose a cap on the amount of commission that may be paid to vehicle dealers in relation to the sale of add-on insurance products.

Given that ASIC routinely link commissions with inappropriate advice, their support of this recommendation is entirely predictable.


6.2 – ASIC’s approach to enforcement

ASIC should adopt an approach to enforcement that:

  • takes, as its starting point, the question of whether a court should determine the consequences of a contravention;

  • recognises that infringement notices should principally be used in respect of administrative failings by entities, will rarely be appropriate for provisions that require an evaluative judgment and, beyond purely administrative failings, will rarely be an appropriate enforcement tool where the infringing party is a large corporation;

  • recognises the relevance and importance of general and specific deterrence in deciding whether to accept an enforceable undertaking and the utility in obtaining admissions in enforceable undertakings; and

  • separates, as much as possible, enforcement staff from non-enforcement related contact with regulated entities.

ASIC have signalled a new willingness to take action; although ASIC activity still appears inconsistent and focused on “smaller targets”. This is likely to change, quickly, as legislative changes provide ASIC with harsher penalties and more options.

I would like to underscore one broad point - ASIC is very focused on enforcement and litigation.
Corporate Australia should know that ASIC has the very clear will to take wrongdoers to court. As the Royal Commission found, that is what Australians expect of their regulator. And that is what ASIC will deliver.
— James Shipton, Chair, Australian Securities and Investments Commission, Senate Economics Legislation Committee, 20 February 2019

6.10 – Co-operation memorandum

Commissioner Hayne recommended that ASIC and APRA prepare and maintain a joint memorandum setting out how they intend to comply with their statutory obligation to co-operate.

The memorandum should be reviewed biennially. Both ASIC and APRA should report each year in their respective Annual Reports on the operation of their detente.

Both regulators have endorsed this recommendation.


6.12 – Application of the BEAR to regulators

The Commissioner recommended that, in a manner agreed with the external oversight body (the establishment of which is the subject of Recommendation 6.14) each of APRA and ASIC should internally formulate and apply to its own management accountability principles of the kind established by the BEAR.

ASIC agree.


Other matters

The report also includes a number of recommendations which ASIC had advocated for in its earlier submissions to the Royal Commission which they stated would build on existing reform agenda and the changes introduced by the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018.

These include:

  • an expanded role for ASIC to become the primary conduct regulator in superannuation;

  • the extension of Banking Executive Accountability Regime (BEAR)- like accountability obligations to firms regulated by ASIC, with their focus being on conduct;

  • the end of grandfathering of Future of Financial Advice (FOFA) commissions;

  • the extension of the proposed product intervention powers and design and distribution obligations to a broader range of financial products and services;

  • the extension of ASIC’s role to cover insurance claims handling and the application of unfair contract terms laws to insurance;

  • reforms to breach reporting; and

  • ASIC being provided with a directions power.

ASIC have stated that the new powers, penalties, legislative reform and funding are crucial to meeting the expectations of the community, and that they are ready to work with parliament, government and APRA to implement the reforms.

The government’s response to the findings of the Royal Commission highlight the importance of ‘the regulators taking on new responsibilities and, in many cases, simply to do more’.

Hopefully, they have the desired effect.