- In separate addresses at the ASIC Annual Forum, ASIC Deputy Chair Sarah Court and ASIC Chair Joe Longo took the opportunity to underline ASIC's strong record on enforcement post-Hayne, including ASIC's continued willingness to take court action where necessary
- Ms Court also announced ASIC's enforcement priorities (listed here) for 2024.
- Continuing areas of enforcement focus include (among others): sustainable finance and tackling greenwashing, DDO compliance, and tackling 'predatory lending'.
- New focus areas include: enforcing compliance with the reportable situation regime; insurance claims handling (delays); compliance with financial hardship obligations; and used car financing. Taking enforcement action against 'gatekeepers' (eg auditors, registered liquidators and financial services/credit licensees) facilitating misconduct is also a priority for 2024
ASIC's enforcement approach
ASIC's enforcement approach is 'proactive, strategic and bold'
A key message in both Australian Securities and Investments Commission (ASIC) Chair Joe Longo's 21 November 2023 opening address to the ASIC Annual Forum, and separately in ASIC Deputy Chair Sarah Court's address is that ASIC stands by its record on enforcement. Mr Longo commented:
'Despite assertions flying in the face of the evidence, ASIC is very much committed to law enforcement. Our record demonstrates this'.
Both the ASIC Chair and Deputy Chair emphasised that ASIC is one of Australia's most active law enforcement agencies, pointing to ASIC's enforcement over the past several years post-Hayne in support. Both Ms Court and Mr Longo drew a distinction between ASIC's stance pre and post the Hayne Commission.
Ms Court stated:
'Our enforcement approach of today is fundamentally different to that which pre-dated the Royal Commission. In those days ASIC negotiated outcomes, accepted undertakings from large financial institutions and – in those matters that did go to court – penalties were relatively low. Our enforcement approach of today, by contrast, is proactive, strategic and bold'. Ms Court also underlined that ASIC is 'not conservative' in the cases it takes on, but has proven itself ready to act where harm or potential harm is identified, testing the limits of existing law to 'make sure they [existing laws' have broad protective application'.
ASIC's success in delivering against its 2023 enforcement priorities
Ms Court stated that:
'By any measure we successfully delivered against the targets we set ourselves this time last year'.
In illustration of this, Ms Court pointed to both ASIC's record in taking action to enforce compliance with the Design and Distribution Obligations (DDO) regime and ASIC's greenwashing actions (both included in ASIC's 2023 enforcement priorities), among other examples.
ASIC’s 2024 enforcement priorities
ASIC's priorities for the next 12 months are as follows.
'Enforcement action targeting poor distribution of financial products' is set to be a continuing priority for ASIC over the next 12 months. Announcing this, Ms Court reiterated that to date ASIC's focus has predominantly been on product design and target market determinations (TMDs). Over the next 12 months, ASIC intends to focus on distribution of financial products ie on the reasonable steps taken by product issuers to ensure their products are distributed to the relevant target market.
Misleading conduct in relation to sustainable finance including greenwashing will also continue to be a key enforcement priority for ASIC. Ms Court stated that
'Going forward our focus will be on net zero statements and targets made without a reasonable basis; the use of terms like ‘carbon neutral’, ‘clean’ or ‘green’ that are not founded on reasonable grounds; and the use of inaccurate labelling or vague terms in sustainability-related funds'.
Protection of vulnerable consumers: A number of ASIC's priorities over the next twelve months are focused on protection of vulnerable consumers. These include:
- Continued focus on high-cost credit and predatory lending practices impacting consumers and small business
- The provision of used car finance to vulnerable consumers including misconduct by brokers, car dealers and finance companies – a new priority for 2024
- Compliance with financial hardship obligations – also a new priority for 2024.
Conduct impacting small business including small business creditors is also identified as a new priority: Announcing this, Ms Court said that ASIC plans to focus in particular on:
'misconduct by financial services and credit providers who engage in misconduct in their dealings with small business, including unlawful credit activity, unfair contract terms and insurance claims handling misconduct'.
Compliance with the reportable situations regime: Announcing this, Ms Court observed that:
'Our work in this area suggests that compliance with the new regime is low – with a disappointing 89% of licensees not reporting against this regime at all. These reporting rates suggest we need a stronger approach to compliance in this area, and we have recently commenced a targeted surveillance of those licensees who are not reporting to us as we would expect'.
'Ensuring fair and orderly financial markets'
Two objectives fall under this broader aim. Namely:
Technology and operational resilience for market operators and market participants: Announcing this, Ms Court said that in 2024, ASIC intends to:
'specifically focus on technology and operational resilience for market operators and market participants, including compliance with the new market integrity rules'.
Further to this point, ASIC Chair Joe Longo explained that ASIC is prioritising this because:
'As financial markets continue to become increasingly fragmented and digitised, the risks faced by our financial markets increase too. We’ve observed that where failures in implementation of automated systems aren’t identified in initial testing, they tend to persist. In some cases, for many years. The automated nature of these systems means market harm can far exceed that caused by errors stemming from manual processes, hence its strategic importance. For this reason, technological and operational resilience remains integral to ASICs mandate to supervise financial markets. Enforcement action for these types of serious and long-standing failures will reinforce the importance of getting the changes right before they are rolled out'.
Enforcement action targeting gatekeepers (eg auditors, registered liquidators and financial services/credit licensees) facilitating misconduct. Summing up ASIC's reasons for prioritising this issue Mr Longo said:
'Market participants need to be vigilant in ensuring that the trades and orders they facilitate for their clients are neither suspicious nor potentially manipulative. In fact, the market integrity rules oblige market participants to devote appropriate organisational and technical resources to this task. They’re also obliged to take action in relation to suspicious trading and to stop harm before it occurs. While there are clearly fewer market participants than individuals and firms who trade on our markets, by focussing our enforcement action at the gatekeeper level, we send a strong message to those with the greatest potential to have a meaningful impact on market integrity. But let me be very clear: we won’t focus on gatekeepers to the exclusion of those who engage in market manipulation. This will always remain an ASIC enduring priority'.
- Insurance claims handling is included in the list of ASIC's enforcement priorities for the next 12 months.Announcing this, Ms Court said that ASIC will focus in particular on:
'delays in claims handling, poor communication and record keeping, and inappropriate use of exclusions'.
In the superannuation context, ASIC's priorities for the next 12 months are:
- Addressing 'member services failures in the superannuation sector'; and
- Addressing 'misconduct resulting in the systematic erosion of superannuation balances'.
Ms Longo flagged that acting on the findings of REP 766 Implementation of the retirement income covenant: Findings from the APRA and ASIC thematic review (summarised in Governance News 19 July 2023 at p22) – to enhance members' retirement outcomes – will be one area of focus for ASIC over the next 12 months.
Mr Longo stated that:
'Poor marketing, distribution and advice practices leave consumers in sub-optimal investment choices, resulting in poor investment returns…Trustees should put – must put – members at the heart of decision-making in relation to how superannuation products are developed, governed, and marketed….But our review [see: REP 766] showed that trustees aren’t doing enough to enhance their members’ retirement outcomes. We will take strong action to protect consumers against conduct that is not efficient, honest and fair in this sector'.
ASIC's 'enduring' priorities
ASIC's 'enduring enforcement priorities' are: a) misconduct damaging market integrity; b) misconduct impacting First Nations people; c) misconduct involving a high risk of significant consumer harm; d) systemic compliance failures by large financial institutions; e) new or emerging conduct risks within the financial system; and f) governance and directors' duties failures.