The ASIC Enforcement Review Taskforce is currently reviewing the enforcement regime of the Australian Securities and Investments Commission (ASIC). Assessing the existing regulatory tools that assist ASIC perform its functions, the Taskforce has released three consultation papers:
- strengthening ASIC’s licensing powers;
- the role of industry codes in the financial sector; and
- harmonisation and enhancement of search warrant powers
The consultation papers are discussed below. Submissions close 26 July 2017 for all three consultations. Please be in touch should you wish to discuss.
Strengthening ASIC’s Licensing Powers
ASIC grants Australian financial services (AFS) and Australian credit licences if the applicant and application meet requirements specified in the Corporations Act 2001 (Corporations Act) and National Consumer Credit Protection Act 2009 (Credit Act). However, there are different assessment powers and thresholds for assessment of AFS licence applications and credit licence applications. The Taskforce considers that, to the extent practicable, there should be uniformity between the licensing regimes for AFS and credit licences.
The Taskforce has drawn on the recommendations of the final report of the Financial System Inquiry and made the following proposals in this consultation paper to strengthen ASIC’s licensing powers:
- Position 1: ASIC should be able to refuse a licence application (or, for existing licensees, take licensing action) if it is not satisfied controllers (being those persons that control a body corporate AFS licensee by reason of voting power, board control or other influence) are fit and proper. This would require controllers to satisfy the assessment that applies to responsible officers (for AFS licence applicants) and directors and senior managers (for credit licence applicants).
- Position 2: Introduce a statutory obligation to notify a change of control within 10 business days of control passing and impose penalties for failure to notify. This would replace the existing statutory licence condition that requires notification within 10 business days of the licensee becoming aware of the change.
- Position 3: Align the assessment requirements for AFS licence applications with the enhanced credit licence requirements to ensure uniformity. This will require the amendments to the Corporations Act set out in table 1 below.
- Position 4: Empower ASIC to cancel or suspend a licence if the licensee fails to commence business within six months or ceases to carry on a financial services or credit business to remove the issue of ‘warehousing’ AFS licences. Licensees should be given the ability to seek an extension of time from ASIC if they cannot commence business within the six month timeframe.
- Position 5: Align consequences for making false or misleading statements in documents provided to ASIC in the AFS and credit contexts. This will require the Corporations Act to be amended to ensure there is no specific provision that applies with respect to false or misleading statements made in AFS licence applications. The penalties for misleading ASIC in AFS licence applications should be consistent with the penalties for misleading ASIC in other circumstances and with the penalties that apply for doing so under the Credit Act.
- Position 6: Making a materially false or misleading statement in a licence application should be a specific basis for refusing to grant the licence. ASIC would have reason to believe that the applicant is likely to contravene its licence obligations and should be provided with an express power to refuse a licence application on the grounds of false or misleading material.
- Position 7: Introduce an express obligation requiring applicants to confirm that there have been no material changes to information given in the application before the licence is granted. The confirmation could be provided at the end of the assessment period after the applicant has been provided with a draft of the licence that ASIC proposes to grant.
Industry codes in the financial sector
In relation to key services provided to retail and small business customers, the Taskforce is consulting on the introduction of a co-regulatory model for codes to significantly improve their content, consistency and enforceability. Under this model, industry participants would be required to subscribe to an ASIC approved code under the watch of a code monitoring body comprised of industry, consumer and expert members. In the event of non-compliance, individual customers would be able to seek appropriate redress through internal and external dispute resolution arrangements.
The Taskforce has proposed that the content of and governance arrangements for relevant codes should be subject to approval by ASIC, with entities whose activities are covered by an approved code required to subscribe to that code by a condition on their financial services license or some similar mechanism. The activities should align with the proposed jurisdiction of the new Australian Financial Complaints Authority (AFCA) (the establishment of which we previously discussed). To this end, each code should be expressed to apply to dealings between a subscriber and anyone who is entitled to access the dispute resolution system operated by the AFCA in respect of those dealings.
The paper identifies a range of activities proposed to be covered by the approved code requirement, including (though not exhaustive): retail banking, retail life insurance, the provision of insurance and associated services through superannuation or other group arrangements, retail general insurance, insurance brokerage, and the provision of ePayments services. However, the Taskforce has recognised that a co-regulatory model may not be appropriate for all activities conducted in the financial sector. For example, there may be complexity for financial advisers who will soon be subject to a Code of Ethics compliance requirement in 2020, set by the Financial Adviser Standards and Ethics Authority.
Harmonisation and Enhancement of Search Warrant Powers
ASIC is currently able to utilise search warrant powers under different legislation including the Australian Securities and Investments Commission Act 2001 (ASIC Act), National Consumer Credit Protection Act 2009, Superannuation Industry (Supervision) Act 1993, Retirement Savings Accounts Act 1997 and Crimes Act 1914 (Crimes Act). ASIC has argued that issues, such as inconsistences as a result of differences between the powers under different legislation, have limited the utility of search powers as investigative tools.
The Taskforce has proposed possible reforms to strengthen ASIC’s investigative toolkit, broadly suggesting the following:
- consolidation of ASIC-specific search warrant powers under the ASIC Act;
- allowing ASIC Act search warrants to be issued when there is a reasonable suspicion of a contravention of an indictable offence;
- expanding the ASIC Act search warrant powers to provide for search and seizure of ‘evidential material’ (rather than the narrower ‘particular books’ definition currently used);
- providing a range of ancillary powers mirroring Crimes Act provisions (i.e. to provide for search, seizure and copying of electronic data); and
- allowing material seized under ASIC Act search warrants to be available for use in criminal, civil and administrative proceedings, subject to appropriate limits when access is sought by private litigants.
These positions seek to “harmonise and strengthen” ASIC’s powers, making such powers comparable with the Australian Competition and Consumer Commission.