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What's New? October 2017 edition 03 Oct 2017 ASIC's power to ban senior officials in financial sector

The ASIC Enforcement Review Taskforce has released a consultation paper proposing amendments to ASIC's administrative powers which, if accepted by Government, would mean that directors, officers or senior managers of a financial services business could be the subject of an ASIC banning order as a result of their role.

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In its consultation paper, the Taskforce notes the shortcomings of ASIC's existing banning power under s920A of the Corporations Act. These shortcomings of the banning power have, in recent years, been the subject of scrutiny in the Financial System Inquiry (FSI) and a Senate report on ASIC's performance. Both the Senate report and the FSI noted two key problems:

  • The existing scope of banning orders: while ASIC has the power to cancel an AFS licence or credit licence, or ban a person from providing financial or credit services, it lacks power to prevent a person having a role in managing a financial services or credit business. 
  • The threshold for making a banning order: while the circumstances in which ASIC is empowered to make a banning order cover many circumstances involving poor conduct, these are not very effective in dealing with individuals who are responsible for managing a financial services firm that has compliance issues, but who do not themselves provide financial services.

The proposal to address these two key issues is to broaden the scope of the existing power and to reduce the threshold for ASIC to make a banning order. 

Broader scope to make a banning order

The Taskforce proposes that the scope of ASIC’s banning power should be widened to allow ASIC to ban a person from:

  • performing a specific function in a financial services business, including being a senior manager or controller of a financial services business; and/or 
  • performing any function in a financial services business.

Reduced threshold for a banning order 

The Taskforce proposes that the grounds for ASIC's power to ban individuals be extended where ASIC has reason to believe: 

  • is not a fit and proper person to provide a financial service or financial services, or to perform the role of officer or senior manager in a financial services business; or 
  • is not adequately trained, or is not competent, to perform the role of officer or senior manager in a financial services business.

Current grounds for banning orders include ASIC having reason to believe the person is not of good fame and character, or that that the person is not adequately trained or competent to provide financial services. These expanded grounds would provide greater scope for banning those involved in a financial services business, particularly on the management side.

The Taskforce also considers that the grounds for ASIC to ban a director, officer or senior manager, should include where a person has breached their obligations in sections 180-183 of the Corporations Act (directors' and officers' duty to exercise care and diligence and duties of good faith, proper purpose and proper use of position and information). In respect of the potential inclusion of breach of s 180, the Taskforce has said it recognises that this equates to enabling banning on a "negligence" standard, and therefore specifically welcomes comments on this. 

Overlap with the BEAR?

As covered in our Financial Services Update, the Banking Executive Accountability Regime (BEAR) proposes a number of new powers for APRA which relevantly include a power to ban executives of Authorised Deposit-taking Institutions (ADIs) and their subsidiaries. The Taskforce’s proposed amendments are intended to operate independently of the BEAR, and will apply well beyond ADIs, although there will be overlap as they will apply to financial services businesses and holders of an AFS licence.

Potential implications

The proposed amendments to the banning power have implications particularly for those involved in the management of a financial services business. Along with the BEAR, the proposal represents another attempt by Government to increase individual accountability in the financial sector.

Submissions in response to the Consultation Paper are due by 4 October 2017.

 

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This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.

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