regulator

In welcoming the final report of the banking Royal Commission in February 2019, ASIC chair James Shipton was speaking from the perspective of an organisation that had closely supported and cooperated with the inquiry from the beginning. “The Royal Commission report identified ASIC’s enforcement culture as the focus of change needed at ASIC,” he said. “This focus accords with ASIC’s change agenda, which included adopting the ‘why not litigate?’ enforcement stance, initiating our Internal Enforcement Review and enhancing our governance structures.”

It has been a year of change. ASIC established its Office of Enforcement to oversee and direct a renewed focus on a more effective, quicker, more transparent and higher-deterrence regulatory approach. We instituted more intensive supervisory programs and targeted thematic and sectoral risks such as poor governance structures and non-financial risk. Similarly, we initiated the close and continuous monitoring program to examine major financial institutions’ operation of areas that may signify further issues. Breach reporting and complaints handling were identified as litmus tests for an entity’s compliance and customer-focused culture.

Indicative of the sense of urgency has been ASIC’s preparedness to take on new responsibilities where we could, without waiting for legislative reforms. As the nominated principal regulator of conduct in the superannuation industry, ASIC identified persistent underperformance relative to peers as posing significant harm. We introduced closer monitoring of the industry’s implementation of the Protecting Your Superannuation Package reforms.

Of the case studies examined by the Royal Commission, ASIC launched 29 investigations, and four moved quickly into litigation (one, involving the Dover financial group, resulting in a guilty verdict in December 2019). Two matters involving NAB or related entities progressed rapidly to the penalties stage. In the second half of 2019, more than 300 investigations were active, covering a range of misconduct across the extent of ASIC’s broad jurisdiction — breaches of D&O duties, insider trading and market manipulation, auditor and liquidator breaches, and breaches of licensing obligations, including Australian financial services.

In all, the past year has seen a 24 per cent increase in the number of ASIC enforcement investigations, and a 134 per cent increase in enforcement investigations involving the largest financial services firms in Australia (or their officers or subsidiary companies). ASIC has also undertaken a number of initiatives that align with the Royal Commission’s general findings and recommendations.

ASIC took action in two cases where it believed significant consumer detriment was imminent, warranting the use of its recently legislated product intervention power. These two matters — certain short-term lending models, and the issue and marketing of short-term high-leverage products — are currently playing out through consultation or the appeals process, and others are in prospect.

Other proactive and/or preventative measures have included moving to restrict unsolicited telephone sales of certain insurance products, a range of measures designed to limit and control the sale of add-on insurance products — such as a deferred sales model, providing the consumer with some degree of consideration before commitment — and spelling out our expectations for providers of consumer credit insurance.

At the time of writing, a number of bills before parliament propose increased licensing and banning powers for ASIC, and extending the unfair contract terms provisions in the Australian Securities and Investments Commission Act 2001 to insurance, among other things.

Perhaps one direct recommendation that might otherwise go overlooked best encapsulates the outcome of the past year. ASIC and its co-regulator, the Australian Prudential Regulation Authority, have settled a new agreement for cooperation and information sharing that captures the prioritisation and urgency of the Royal Commission’s approach. Without that support and strategic partnership, one-off reforms count for little. From the ASIC perspective, elevating the interests of investors and consumers should not be the sole priority of the corporate regulator, but without that there won’t be the restoration of trust and mutual respect our financial services industries require to operate for the benefit of all Australians.