ASIC pivots away from enforcement clampdown

The Australian Securities and Investment Commission (ASIC) released its corporate plan for 2021-25 on Thursday, outlining its regulatory priorities and actions for the next four years – which had been shaped by a new Statement of Expectations from the government.

Treasurer Josh Frydenberg has laid out that the government will expect ASIC to contribute to Australia’s economic goals, including its recovery from the pandemic and will work closely with Treasury on the implementation of policy reforms.

There are four external strategic priorities for ASIC set out in its corporate plan:

• Promoting economic recovery – including through better and more efficient regulation, facilitating innovation and targeting regulatory and enforcement action to areas of greatest harm
• Reducing risk of harm to consumers exposed to poor product governance and design; and increased investment scam activity in a low-yield environment
• Supporting enhanced cyber resilience and cyber security among ASIC’s regulated population, in line with the whole-of-government commitment to mitigating cyber security risks
• Driving industry readiness and compliance with standards set by reformed legislation (including the Financial Accountability Regime, reforms in superannuation and insurance, breach reporting and the design and distribution obligations [DDOs])

The new agenda has been set amid an internal overhaul for the regulator, after the exits of former chair James Shipton and his deputy Daniel Crennan following an expenses scandal.

Joe Longo, who became the regulator’s chair in April, commented that ASIC will have an important role in aiding the country’s recovery from the pandemic, as well as confidence in the financial system.

“We will continue to take opportunities to support businesses through more efficient regulation. At the same time, we will continue to be vigilant in protecting consumers and investors from harm,” Mr Longo said.

The plan makes no reference to the regulator’s previous “why not litigate?” mentality that was adopted after the royal commission, with a strong focus on financial misconduct and consequences.

But the chair’s opening letter in the Corporate Plan has insisted that ASIC will remain a “strong and targeted law enforcement agency” and an “active litigator against misconduct”.

“ASIC will make use of the full range of regulatory tools available to enhance trust in the financial system, and we will exercise our powers consistently, transparently and proportionately,” Mr Longo said.

ASIC has total available funding of $462.6 million in 2021-22, 6 per cent less than the previous year. As outlined in its recent Cost Recovery Implementation Statement, the regulator expects to recover $337.5 million in total levies across financial industries.

Enforcement, supervision and surveillance will account for an estimated 80 per cent of the watchdog’s funded activities in 2021-22. Around half of the budget has been placed towards enforcement, while 26.4 per cent has been allocated to supervision and surveillance.

The effectiveness of ASIC’s activities will be monitored by the Financial Regulator Assessment Authority (FRAA), a recently formed body that will also watch over APRA.

The FRAA started its first biannual assessment of ASIC and APRA in July.

ASIC also commissioned an external review of its operational functions, as part of its work to strengthen its organisational infrastructure.

The review considered support functions, such as finance, people and development, IT, data and analytics, planning and corporate services.

ASIC has said that it has accepted the review’s recommendations and will begin to implement them over the next 12 months.

As at 1 July, ASIC had 2,088 employees – 27 per cent more than a year prior, and it has flagged that it will recruit more data professionals as it scales up its technology capabilities.

The regulator has plans to implement a data strategy over the next five years, to help identify threats and harms in the regulatory environment and to set its priorities.

ASIC watching brokers and lenders around best interests duty

ASIC has outlined four priorities for credit banking providers, which adds to other cross-sector regulatory components, including DDOs, breach reporting, hawking prohibitions, internal dispute resolution, institutional supervision, whistle-blower programs, remediation and enforceable codes.

In banking and credit, the priorities are:

• Consumer leases and short-term, small amount finance
  ASIC has said it will continue to collect data from relevant lenders and lessors to identify and respond to predatory lending practices. The watchdog has highlighted continuing credit models and other models purporting to be exempt from the National Credit Act.
• Lender responses to borrowers experiencing financial difficulty
  The regulator has committed to monitoring trends through APRA’s data collection and engagement work. It expects to influence how lenders respond to financial hardship through surveillance and setting expectations. It has warned it may take action against conduct that exacerbates consumer financial stress.
• Poor debt collection practices
  ASIC has said it will collect data to understand the controls in place when debt is sold, how they work and who is affected, as well as engage with lenders and industry associations.
• Lending standards of non-bank lenders
  This area is of lower priority to the regulator, but it has said after legal reforms pass, it will engage with APRA to promote consistency about lender obligations, and it will gather information on the industry’s implementation.

ASIC has also signalled that it will continue to gather data and information from brokers, aggregators and lenders on mortgage best interests duty and conflicted remuneration rules.

File reviews are also on the agenda – with ASIC warning it will take regulatory action, including enforcement, if warranted.

[Related: APRA extends regulatory relief for COVID loan deferrals]