The capability review of ASIC last year noted that ASIC had a tendency to be reactive as opposed to forward looking in the way that it uses its resources. ASIC’s current consultations and recent reports – and the ongoing reviews of ASIC itself – demonstrate an attempt to move towards a more balanced approach that emphasises the full scope and use of its regulatory toolkit.
ASIC consults on its proposal to develop and implement a Financial Services Panel
On 11 April 2017, ASIC released a Consultation Paper on its proposal to establish a Financial Services Panel. Initially, the Panel would be responsible for determining (in some circumstances), whether ASIC will make banning orders against individuals for misconduct in the financial services and credit industries. Over time, ASIC may expand the range of matters that the Panel may make decisions on, including ASIC’s power to issue infringement notices or cancel an AFS licence or Australian credit licence.
Matters would be referred to the Panel where the significance, complexity or novelty of the circumstances lends itself to peer review. It is envisaged that the range of matters referred to the Panel may expand over time.
ASIC believe that by adding “a strong element of peer review” the proposed Panel – comprising industry participants or non-industry participants with relevant experience and expertise (eg lawyers and academics) – is intended to enhance regulatory outcomes by ensuring that ASIC’s administrative decisions take into account current industry practices.
ASIC Enforcement Taskforce consults on significant breach reporting
The ASIC Enforcement Review Taskforce, formed in October last year, recently released a Position and Consultation Paper on the self-reporting regime for Australian financial licensees under section 912D of the Corporations Act.
In the Position Paper, the Taskforce discusses a number of the challenges which licensees face in applying the self-reporting test when considering whether a breach has occurred, or is likely to occur, and whether the breach or likely breach is significant. The Taskforce also identified a number of ways that the self-reporting regime could be improved; developing twelve preliminary positions, which encompass a range of reforms designed to enhance the current regime and make it more effective. Our Financial Services Update from 13 April summarised each of these preliminary positions.
Submissions on ASIC’s product intervention powers
The first round of public consultation on the Commonwealth Treasury’s Proposals Paper in December 2016 concerning ASIC’s product intervention powers (see our Financial Services Update from December 2016) has now concluded, with submissions and feedback provided now to be considered by the federal government before the development of draft legislation, prior to a further round of consultation.
The submissions of ANZ, Westpac and NAB are publicly available. CBA has meanwhile signposted its involvement in the consultation process and expressed public support for the objectives of these reforms, yet previously had identified “considerable challenges” associated with the product intervention power in particular.
In their submissions, the major banks provide in principle support for the introduction of design and distribution obligations for product issuers and distributors as well as for enhancing ASIC’s regulatory toolkit to intervene where there is a risk of significant consumer detriment. ANZ, Westpac and NAB’s submissions qualify their support, however, in a number of important respects. Some of the highlights from the submissions in relation to the product intervention power are set out in the table below.
Types of intervention
| The potential interventions outlined in the Proposals Paper are appropriate, but an extension of the power to allow ASIC to make other types of interventions (eg intervening on matters relating to price) is not supported. |
Applicable products
| The potential interventions outlined in the Proposals Paper are appropriate, but an extension of the power to allow ASIC to make other types of interventions (eg intervening on matters relating to price) is not supported. |
Steps required prior to intervention
| Prior to using the power, ASIC should be required to undertake consultation and consider alternative powers/other avenues, or otherwise carefully establish the need to intervene. This is consistent with the exceptional nature of the power and expectations that it would be used as a “last resort” and with a high level of accountability. For example, consultation with APRA may be appropriate where intervention raises issues that are relevant to other regulatory objectives (eg capital raising).
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| Regulatory guidance from ASIC | Further clarity is sought in relation to a number of matters, including when the power may be used (eg not to be used for pre-approval of financial products), prior consultation with affected industry participants and other regulators, transparency in its use and public reporting on intervention and assessing consumer detriment. |
| Duration of temporary intervention | NAB and ANZ consider that an intervention of up to 18 months is reasonable, whereas Westpac submitted that an 18 month intervention will adversely impact product innovation and create market uncertainty and that a 12 month maximum (with no ability for extension) would strike an appropriate balance. |
How large institutions oversee their advisers: ASIC report
In March, ASIC released a report on its observations and findings from its 18 month review of how large financial institutions oversee their financial advisers.
Our Financial Services Update from 21 March 2017, identified eight key messages from ASIC to financial advice businesses, including its expectations for compliance in areas such as breach reporting, adviser file audits, supervision and monitoring through data analytics, background checks, remediation and culture in advice businesses.
ASIC’s report forms part of ASIC’s broader Wealth Management Project – its findings should assist the financial advice industry to raise its standards and reduce the risk of providing non-compliant advice and poor customer outcomes.
