Treasury’s ASIC Enforcement Review taskforce, initiated by the Federal Government last year to review ASIC’s enforcement regime, has this week issued three ‘Positions and Consultation’ papers that propose significant increases to ASIC’s powers. The proposed changes will be of considerable relevance to financial services businesses.

Based on our experience acting for AFS licensees in a wide variety of matters, the following proposals, in particular, are likely to provoke vigorous debate:

  • The broadening of ASIC’s search warrant powers to allow seizure of a broad range of ‘evidential material’, rather than being limited to ‘particular books’ as specified in the warrant
  • Allowing documents seized under a search warrant to be used by ASIC in subsequent civil or administrative, not merely criminal, actions
  • ASIC being empowered to refuse a licence application, or take action against an existing licensee, where the licensee’s controllers – broadly defined – are not considered ‘fit and proper’ by ASIC
  • The introduction of a ‘co-regulatory’ model for relevant ASIC-approved industry codes, including mandatory subscription to codes as an AFSL condition, with codes being binding on and enforceable as against subscribers

A more detailed summary of the key points from the taskforce’s papers is set out below:

Harmonisation and enhancement of search sarrant powers

  • ASIC has raised concerns that its powers to obtain and execute search warrants under various enabling legislation (namely, the Corporations Act, ASIC Act, NCCP Act, SIS Act, RSA Act (together, ASIC-specific powers) and the Crimes Act) are inconsistent and of limited utility as investigatory tools.
  • Limitations with the ASIC-specific powers have meant that of just over 200 search warrants obtained by ASIC since January 2011 almost all have been obtained under the general provisions of the Crimes Act, with only two being ASIC Act search warrants and none being search warrants issued under the NCCP Act, SIS Act or RSA Act.
  • The taskforce’s preliminary positions include:
    • That ASIC-specific powers in relation to search warrants be consolidated into the ASIC Act, removing the requirements under the NCCP Act, SIS Act and RSA Act to ‘forewarn’ targets by seeking production of books from them prior to obtaining a search warrant
    • The present requirement under the ASIC-specific powers – that ASIC specify in the warrant ‘particular books’ that may be searched and seized – be removed, allowing ASIC broader scope to search and seize ‘the kind of evidential material specified in the warrant’
    • The ASIC-specific powers should only be exercisable where ASIC holds a reasonable suspicion that an indictable offence has been committed, meaning that a suspicion that an offence punishable by imprisonment for 12 months or less (or a contravention actionable only in a civil or administrative context) would not provide a basis for the issue of a search warrant
    • Ancillary provisions, as per the search warrant provisions under the Crimes Act and Competition and Consumer Act, be extended to the ASIC-specific powers, such that (amongst other things) ASIC can require reasonable assistance from occupiers during the execution of a search warrant, and provision is made for seizure of data on electronic devices
    • Materials obtained in searches under ASIC-specific powers should be available for use by ASIC in any subsequent proceedings, whether criminal, civil or administrative in nature
    • It may be appropriate to impose additional limitations on access by private litigants to material seized by ASIC under a search warrant.

Strengthening ASIC’s licensing powers

  • ASIC has raised concerns as to the scope of its powers to regulate AFS and credit licensees and in relation to inconsistencies between the AFS and credit licensing regimes.
  • The taskforce’s preliminary positions include:
    • ASIC should be permitted to refuse a licence application, or take licensing action against existing licensees, if it is not satisfied the applicant’s/licensee’s controllers are ‘fit and proper’, with the concept of a ‘controller’ to extend beyond a licensee’s holding company, taking into account the practical influence a person can exert over the licensee and practices or behaviour affecting the licensee’s operating policies
    • A statutory obligation to notify a change of control for a licensee within 10 days of the change of control occurring should be introduced, with penalties imposed for any failure to notify;
    • The assessment requirements for AFS licence applications and enhanced credit licence applications be brought into alignment
    • ASIC should be empowered to cancel or suspend a licence if the licensee fails to commence business within six months of being granted a licence and
    • Making materially false or misleading statements in a licence application should be a specific basis for refusing to grant the licence.

Industry codes in the financial sector

  • The taskforce has considered whether a ‘co-regulatory’ approach in appropriate parts of the financial sector would improve the industry code self-regulatory model.
  • The taskforce’s preliminary positions include:
    • The content of certain industry codes (which cover activities specified by ASIC as requiring code coverage) should be subject to ASIC approval
    • Financial services businesses engaging in activities covered by an ASIC-approved code should be required to subscribe to that code, potentially as a condition of their AFSL
    • ASIC-approved codes should be binding on and enforceable against subscribers by contractual arrangements with a code monitoring body
    • Remedies for non-compliance with an ASIC-approved code be able to be sought by customers through internal and external dispute resolution arrangements with the relevant licensee
    • The adequacy of codes and industry compliance with those codes be monitored by a code monitoring body, comprising industry, consumer and expert members, who report periodically to ASIC.

The taskforce is calling for submissions on the positions set out in the ‘Positions and Consultation’ papers by 26 July 2017.