The ASIC Enforcement Review Taskforce was established in October 2016 to fulfil the Government’s commitment to review the adequacy of ASIC’s enforcement regime in response to the Murray Financial System Inquiry.
The Taskforce provided its report to Government in December 2017 and has made 50 significant recommendations, all of which the Government has now agreed to, or agreed in principle. The Taskforce report was only released in April 2018 in conjunction with the Government response to the report.
These reforms represent the most significant increases to ASIC enforcement powers in more than twenty years and have a major impact on Australian Financial Services Licensees, credit licensees and their directors, officers and other representatives.
The main changes are as follows:
Change to breach reporting obligations:
• Credit licensees to align with AFSL significant breach reporting obligations;
• “Significant breach” test to be objective (currently subjective) and the time for reporting to be extended from 10 to 30 days, but obligation to report within 30 days, if investigating a breach and have not determined, whether it meets the significance test;
• obligation to report to expressly apply to misconduct by an employee or representative;
• the required content of breach reports to be prescribed by ASIC and be lodged electronically;
• Criminal penalties to be increased for failure to report and also to be changed from summary to indictable offence. Civil penalty and infringement notice options added as alternative to criminal option;
• ASIC prerogative to choose whether to take action in respect of licensees when they self-report and certain additional requirements are satisfied; and
• annual publication of breach report data for licensees by ASIC at new firm or licensee-level. ASIC to consider level of disclosures.
New ASIC Search Warrant Powers
ASIC new access to telecommunications intercept material to investigate and prosecute serious offences
Industry codes to move to co-regulatory model:
• ASIC required to approve code content and governance. ASIC decided which should be caught. Insurance and insurance broking codes included in Taskforce priority list for consideration;
• all industry participants would be required to subscribe;
• consideration of consolidation of codes;
• if ASIC considers it appropriate it could require provisions of a code be incorporated into agreements with the customers;
• code to provide that non-compliance with the code would allow individual customer to seek appropriate redress through the participant’s internal and external dispute resolution arrangements; and
• code monitoring body, comprising of a mix of industry, consumer and expert members, should be required to monitor the adequacy of the code and industry compliance with it over time, and periodically report to ASIC on these matters.
ASIC’s licencing approval, suspension and cancellation powers increased:
• to align how applications for credit licences and financial service licences are assessed, adopting the enhanced credit licence assessment requirements;
• ASIC should be able to refuse a licence application (or, for existing licensees, take licensing action) if it is not satisfied controllers are fit and proper or if it is false or misleading in a material particular;
• ASIC can suspend or cancel a licence if a licensee ceases business or fails to commence business within 6 months; and
• new statutory obligation to notify ASIC about changes of control which will be a strict liability offence with penalty notice consequences.
ASIC improved power to ban individuals in the financial sector:
• ASIC power to ban individuals from managing financial services businesses in addition to their current power to ban individuals from performing a specific function, or any function, in a financial services or credit business. Broader range of persons caught e.g senior managers, shadow officers, directors, secretaries and other officers; and
• criteria for enlivening the banning power broadened to include circumstances where an individual is not fit and proper to provide a financial service or financial services, or to perform the role of officer or senior manager in a financial services business or adequately trained, or is not competent, to provide a financial service or financial services, or to perform the role of officer or senior manager in a financial services business.
Strengthening penalties for corporate and financial sector misconduct:
• range of civil penalty provisions to be expanded and inclusion of new ordinary offences;
• maximum civil penalty amounts increased significantly;
• new objective dishonesty test;
• ASIC can also seek disgorgement remedies (removal of benefits illegally obtained or losses avoided) in civil penalty proceedings;
• imprisonment to be removed as a possible sanction for strict and absolute liability offences;
• maximum terms of imprisonment are to be increased for a range of offences;
• maximum fine amounts for other criminal offences are to increased;
• strict liability offences lowest level fines are to increase and ASIC can deal with these offences through the existing penalty notice regime as an alternative to prosecution.
• ASIC infringement notice power applied to a number of provisions – This is an administrative device in which ASIC can allege of a contravention of the law, payment of which causes it to not pursue the alleged contravention any further. Payment of the notice also is not taken as an admission of guilt by the alleged offender
ASIC’s directions power
• ASIC to have the power to direct financial services or credit licensees in the conduct of their business where necessary to address or prevent risk to consumers. e.g cease appointing authorised representatives, accepting new clients; and/or cease transferring business to another licence;
• Low threshold as power is triggered if ASIC has reason to suspect that a licensee has, is or will contravene AFS or credit licensing requirements (including relevant laws);
• allows ASIC to make interim directions without hearing if the direction is to cease a type of activity and a delay in making a direction would be prejudicial to the public interest. Lasts for up to 21 days before hearing required;
• otherwise hearing; and
• all of the above are subject to appeal to Administrative Appeals Tribunal review but a time lag would be involved.
The Government has announced that it will prioritise the implementation of 30 of the recommendations. The remaining 20 recommendations relating to self-reporting of breaches, industry codes and ASIC’s directions powers, will be considered alongside the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The Report and Government’s response can be found on the Treasury website.
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