Consultation on five draft Bills proposing to further strengthen ASIC's enforcement and supervision powers in line with the government's response to certain ASIC Enforcement Review Taskforce Report recommendations.
The ASIC Enforcement Review Taskforce Report made a number of recommendations relating to Search Warrants, Access to Telecommunications Intercept Material, Licensing and Banning Orders. On 16 April 2018 the government agreed to implement the Taskforce's recommendations.
On 11 September, the government released five draft Bills for consultation: 1) Financial Regulator Reform (No 1) Bill 2019: Access to telecommunications; 2) Financial Regulator Reform (No 1) Bill 2019: Banning orders; 3) Financial Regulator Reform (No 1) Bill 2019: ASIC search warrant powers; 4) Financial Regulator Reform (No 1) Bill 2019: (Licensing); and 5) Financial Regulator Reform (No 1) Bill 2019: (Penalties). The deadline for submissions on all five draft Bills is 9 October.
Treasurer Josh Frydenberg said that the exposure draft legislation is intended to strengthen Australian Securities and Investments Commission's (ASIC's) enforcement and supervision powers, in line with the government's response to certain recommendations made by the ASIC Enforcement Review Taskforce.
On 11 September, the government released five draft Bills for consultation.
Announcing the consultation, Treasurer Josh Frydenberg said that the proposed changes are intended to strengthen Australian Securities and Investments Commission's (ASIC's) enforcement and supervision powers, in line with the government's response to certain recommendations made by the ASIC Enforcement Review Taskforce.
[Note: The ASIC Enforcement Taskforce Review report can be accessed here. The government's response to the Taskforce Recommendations is here. For a summary of the government's response see: Governance News 23/04/2018]
A high level overview of each of the five draft Bills is below.
Strengthen ASIC's powers to enforce the Australian Financial Services (AFS) and Australian Credit Licence (ACL) licensing regimes
Fit and proper person requirement (alignment of the AFS and ACL licensing regimes)
Draft Bill — Financial regulator reform (No 1) Bill 2019 (Licensing) — proposes to amend the Corporations Act 2001 (Corporations Act) and the National Consumer Credit Protection Act 2009 (NCCP Act) to strengthen ASIC's licensing powers by increasing the standards required of an Australian Financial Services (AFS) Licence holder, at both the time of application and on an ongoing basis.
The proposed amendments update the requirements for obtaining an AFS licence by replacing the requirement that a person be of 'good fame and character' with the requirement that they be a 'fit and proper person' to provide the financial service covered by the licence.
The amendments also make a number of changes to the AFS licence and credit licence regimes to ensure broader application of the respective fit and proper person tests to all officers, partners and trustees of an applicant, and to extend the test to their controllers.
It's also proposed that the 'fit and proper person' requirements be satisfied on an ongoing basis.
Align the penalties for false and misleading statements in AFS and Credit Licence applications
A second Bill — Financial Regulator Reform (No 1) Bill 2019: Penalties — proposes to amend the Corporations Act and the NCCP Act to align the penalties for making false or misleading statements in documents provided to ASIC in Australian Financial Services (AFS licence) and Australian Credit Licence (ACL) applications.
The two draft Bills propose to implement the government's response to the recommendations in Chapter 5 of the ASIC Enforcement Review Taskforce Report (the ASIC Enforcement Review) to strengthen ASIC's powers to enforce the licensing regimes and ensure integrity on licence applications and the ongoing obligations of licensees.
Enable ASIC to receive and use 'interception information' (eg phone taps) for its own investigations and prosecutions of serious offences
Though ASIC is currently able to access and use stored communications and telecommunications data (eg the content of historical communications such as SMS or email held by the carrier including the underlying details (or metadata) of communications such as subscriber details, call time or call location), it cannot presently access information about interception warrants or lawfully intercepted information (ie information obtained by listening to or recording content passing over a telecommunications service eg real-time listening of telephone calls) when available from the police, the Australian Security Intelligence Organisation (ASIO) and anti-corruption bodies (interception agencies).
Chapter 3 of the ASIC Enforcement Review Taskforce Report recommended that ASIC should be able to receive telecommunications intercept material to investigate and prosecute serious offences. In line with this recommendation, the draft Bill — Financial Regulation Reform (No 1) Bill 2019: Access to Telecommunications Interception Information — proposes to amend the Telecommunications (Interception and Access) Act 1979 to allow ASIC to receive and use lawfully intercepted information its own investigations and prosecutions of serious offences.
The amendments also allow an ASIC staff member to provide the received information to another person where the information relates to a serious offence that ASIC can investigate or prosecute.
'Harmonise and enhance' ASIC's search warrant powers
ASIC currently has a range of search warrant powers contained in the ASIC Act, The NCCP Act, the Retirement Savings Accounts Act 1997 and the Superannuation Industry (Supervision) Act 1993 (SIS Act). ASIC may also apply to a magistrate for a search warrant under the Crimes Act 1914 for execution by the Australian Federal Police and/or state police.
The draft explanatory material explains that the draft Bill — Financial Regulator Reform (No 1) Bill 2019: ASIC Search Warrant Powers — proposes to strengthen ASIC's ability to carry out its enforcement functions by 'modernising and harmonising' ASIC-specific search warrant powers in various acts to 'eliminate inconsistencies and deficiencies' that exist between the various powers.
Schedule 1 to the draft Bill proposes to align ASIC's search warrant powers across various Acts, and align them with the search warrant powers in the Crimes Act 1914 (modified 'as necessary'). Under the proposed changes, ASIC would be able to apply for a search warrant where the contravention would be an indictable offence and to search for and seize evidential material.
The Bill also proposes to make amendments to ASIC's search warrant powers to 'modernise and make the powers more useful, recognising the integral part technology plays in the storage and communication of information'. For example, the proposed changes would give ASIC the ability to: take photographs and make video recordings of the search; operate electronic equipment on the premises to access data; move devices to another place for processing to determine if the devices contain evidential material; and operate seized devices to access data.
Extend ASIC's banning powers
Currently ASIC is able to ban a person from providing a financial services or engaging in credit activities but is not authorised to ban a person from controlling or managing a financial services or credit business. In addition, ASIC can only make banning orders where there has been poor conduct in the provision of financial services or engagement in credit activities. In consequence, existing provisions do not necessarily authorise ASIC to ban a director or senior manager of a financial services or credit business who is demonstrated to be unfit to fulfil their role or has a culture of non-compliance with financial services.
In line with recommendations 30 and 31 of the Taskforce Recommendations, the draft Bill — Financial Regulation Reform (No 1) Bill 2019: Banning Orders— proposes to modify the existing provisions for banning orders in Division 8 of Part 7.6 of the Corporations Act (for the financial services) and the equivalent provisions in Part 2-4 of the Credit Act (for credit activities) to extend ASIC's powers to ban a person from performing functions in a financial services or credit business.
More particularly, under the proposed changes ASIC would be able to make a banning order against a person under the Corporations Act in certain circumstances, including where ASIC has reason to believe that the person is 'not a fit and proper person', or is 'not adequately trained or is not competent' to do any of the following: a) provide financial services; b) perform functions as an officer of an entity that carries on a financial services business; c) control an entity that carries on a financial services business.
In addition, it's proposed that ASIC be able to make a banning order against a person that: a) is insolvent under administration or a Chapter 5 body corporate; b) has, at least twice, been an officer of more than one corporation that was unable to pay its debts; c) has, at least twice, been linked to a refusal or failure to give effect to an AFCA determination; or d) has an officer who ASIC has made, or could make, one or more banning orders against.
According to the draft explanatory materials, the proposed changes are intended to ensure that ASIC is appropriately empowered to remove individuals from continued involvement in the financial sector, particularly those in senior positions of control and influence.
Consultation on the all five of the draft Bills closes on 9 October 2019.
[Sources: Treasurer Josh Frydenberg media release 11/09/2019; Treasury media release 11/09/2019; Access to telecommunications interception information Exposure draft; Access to telecommunications interception information Explanatory materials; Banning orders Exposure draft; Banning orders Explanatory materials; Search warrants Exposure draft; Search warrants Explanatory materials; Licensing Exposure draft; Penalties Exposure draft; Licensing and Penalties Explanatory materials]