ASIC reveals plan to curb misconduct in next four years

The Australian Securities and Investments Commission (ASIC) has published its 52-page Corporate Plan for FY20 to FY23, outlining its seven strategic regulatory priorities to achieving a “fair, strong and efficient financial system”. 

“The public expects financial firms to treat Australians fairly and live up to the expectations of the community and the law,” ASIC chair James Shipton said. 

“The public expects ASIC to see that they do. If the firms or individuals we regulate do not, we have the will, the resources and the regulatory tools to hold them to account.”

The strategic priorities, aimed at identifying threats and behaviours that harm consumers, include: 

• high-deterrence enforcement action; 
• prioritising the recommendations and referrals from the financial services royal commission;
• delivering as a conduct regulator for superannuation; 
• addressing harms in insurance; 
• improving governance and accountability; 
• protecting vulnerable consumers; and 
• addressing poor financial advice outcomes.

In regard to enforcement action, ASIC said it has established the Office of Enforcement to be responsible for investigation of breaches and enforcement of laws that the corporate regulator administers. 

The final royal commission report recommended that ASIC take a “why not litigate” approach after observing that “the law was too often not enforced at all, or not enforced effectively”. However, ASIC commissioner John Price later clarified that adopting a “why not litigate” strategy does not mean “litigate first” or “litigate everything”. 

In the corporate plan, the regulator noted that it is currently investigating the original batch of 13 referrals it received from commissioner Kenneth Hayne, in addition to pursuing 32 other case studies. 

“Proceedings have commenced in one of the matters treated as case studies by the royal commission, and briefs for two of these matters have been referred to the Commonwealth Director of Public Prosecutions,” the corporate plan states.

“In addition, we are engaged in a large volume of work relating to potential misconduct by major financial institutions and their representatives. A number of these are likely to result in referrals for criminal prosecution.”

The regulator noted that its ability to carry out its enforcement agenda has been “significantly boosted” by the passing of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019, which increased maximum prison terms and financial penalties for serious offences. 

ASIC’s plan also involves entering the next phase of the close and continuous monitoring (CCM) program, which embedded “corporate cops” into the big four banks and AMP to monitor governance and compliance actions across extended periods of time. This was launched to address late breach reports and escalation of issues to key decision-makers. 

In the next stage of the program, the regulator will analyse these banks’ internal dispute resolution (IDR) systems to understand how consumer complaints are managed. 

“As part of the program, we will continue to provide the directors and managers of the targeted regulated entities with feedback on the shortcomings we identify in their management and control systems,” the plan states.

“We are developing a model for public reporting and plan to publish our observations of firm practices in late 2019. 

“Over the next four years, we plan to increase the number of large and complex financial services entities we monitor through the program and to add additional areas of focus for our supervision.”

Further, the Corporate Governance Taskforce – which was established last year to conduct “a proactive, targeted and thematic review into corporate governance to identify and pursue failings in large listed companies”, including around the management of non-financial risks – will be expanded to other ASX 100 companies, according to ASIC’s corporate plan. 

“We are also examining the extent to which companies’ disclosures are consistent with their actual practices,” the plan states. 

ASIC said it would release two reports in 2019, outlining the findings of the CCM program. 

The regulator noted that it will utilise new regulatory tools and remedies, such as the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2019, which passed Parliament in April. The new powers mean product providers are obligated to specify the target market for each of their products, ensuring that the design of the products are consistent with the likely objectives, financial situation and needs of customers within that target market. 

It is already using its new product intervention powers against short-term lenders, singling out Cigno and its associate Gold-Silver Standard Finance, which are not covered by the National Consumer Credit Protection Act 2009. 

The corporate regulator said it was targeting the lender’s model of charging fees under separate contracts, which could blow out combined fees to 990 per cent of the borrowed amount. ASIC noted that the target market for short-term loans is consumers in urgent need of small amounts of money, which it said indicates the “vulnerability” of the target market. 

ASIC and the Australian Prudential Regulation Authority are also set to formalise new information-sharing arrangements, after commissioner Hayne stressed in his final royal commission report the importance of information-sharing between the corporate and prudential regulators, warning that not doing so could result in further enforcement failings.

[Related: Lending interventions now ‘part and parcel’ of APRA’s remit]