ASIC has updated Regulatory Guide 98: Licensing: Administrative action against financial services providers to reflect changes to its policy on when and how ASIC may take administrative action against financial services licensees. Partner, Craig Yeung and Lawyer, Jarrod Wilksch review the changes.

Regulatory Guide 98: Licensing: Administrative action against financial services providers (RG 98) provides assistance to financial services licensees, their representatives and advisers to understand when and how ASIC may take administrative action to enforce the financial services laws. It also describes the administrative actions available to ASIC and outlines the matters that ASIC will generally take into account before taking administrative action against financial services licensees and provides some illustrative examples. Importantly, RG 98 focuses solely on ASIC taking administrative action against licensees and does not discuss ASIC’s complementary criminal and civil enforcement powers.

The revisions to RG 98 reflect amendments to AISC’s administrative powers under the Corporations Act that were introduced as part of the Future of Financial Advice reforms which commenced on 1 July 2012 (although compliance with these reforms is not mandatory until 1 July 2013). Further revisions were made to ensure consistency between RG 98 and Information Sheet 151: ASIC’s approach to enforcement, which was released in February 2012 and sets out when and how ASIC exercises its enforcement powers.

ASIC Commissioner John Price has said that the changes “are intended to make it easier for ASIC to remove unscrupulous operators from the industry, improve overall industry standards and promote broader consumer and investor confidence in financial services.”

The changes

The main changes to RG 98 relate to ASIC’s powers to suspend or cancel an Australian financial services licence (AFSL) or to make an order banning a person from providing financial services on the basis of expected future conduct.

Previously ASIC could only suspend or cancel an AFSL or ban a person from providing financial services if it had reason to believe that the licensee/person would not comply with their obligations as the holder of an AFSL (these obligations are set out in section 912A of the Corporations Act). However, the recent amendments to the Corporations Act allow ASIC to suspend or cancel a licence or make a banning order banning a person from providing financial services if it has reason to believe that the licensee/person is likely to contravene these obligations.

ASIC states that in determining whether a licensee/person is likely to contravene an obligation under section 912A of the Corporations Act, for the purposes of exercising its powers to suspend or cancel a licence or make a banning order, ASIC may take into account any information relevant to this question including:

  • conduct of the licensee that shows deliberation and planning in wilfully disregarding the law
  • the extent of compliance by the licensee with analogous obligations in another regime, or
  • any other conduct of the licensee that may lead ASIC to conclude, on reasonable grounds, that the licensee is not likely to comply.

The amendments to RG 98 also clarify the types of factors that ASIC will consider in deciding whether to take administrative action against a licensee. These factors have been made consistent with the factors set out in Information Sheet 151 and broadly include:

  • the nature and seriousness of the suspected misconduct
  • the existence of any internal controls established by the licensee to ensure compliance with its obligations and to detect any breaches of them
  • the conduct of the licensee after the alleged contravention occurred
  • the expected level of public benefit in ASIC taking administrative action
  • against the licensee
  • the likelihood that the licensee’s behaviours will change in response to a particular action and the likelihood that the business community will be deterred from similar conduct through greater awareness of its consequences, and
  • any mitigating factors (for example whether there would be any personal hardship if a banning order were to be made or whether the misconduct was inadvertent and the licensee undertakes to cease or correct the conduct).

In addition, ASIC has also updated examples of conduct (indicative only) relating to specific time periods of banning orders. The specific periods of banning now include banning for:

  • less than three years
  • three to ten years
  • more than ten years, and
  • permanent banning.

These examples have been updated by ASIC to ensure that a stronger emphasis is placed on underlying conduct, especially conduct involving dishonesty, rather than the amount of loss (if any) resulting from the licensee’s actions or the absence of any prior contraventions from them.