The Australian Securities and Investments Commission (ASIC) is Australia’s corporate, markets, financial services, and consumer credit regulator. In its latest quarterly update (April to June 2021), ASIC outlines what it has been doing to protect investors and consumers. It also details important regulatory reforms, including new laws to be introduced in October 2021 which will expand breach reporting requirements, and introduce product design and distribution obligations.
Protecting investors
The pandemic has led to an increase in investor activity, with people looking for ways to maximise their income in these uncertain times. Unscrupulous organisations are exploiting this uncertainty, and ASIC is responding by taking enforcement action to protect investors against misconduct.
In a recent case, following an ASIC investigation, a Forex trading company was ordered by the Federal Court to pay a $20 million penalty for:
- Engaging in systemic unconscionable conduct,
- Paying conflicted remuneration to its team leaders and account managers, and
- Failing to act in the best interests of its clients.
For breaching his duties as a director and aiding the company’s unconscionable conduct, the company’s sole director was ordered to pay a $400,000 penalty and was disqualified from managing corporations for eight years.
In another case, ASIC shut down an unlicensed mortgage lender who was advertising that it can provide customers with “interest free mortgages” upon receipt of a $10,000 deposit. Approximately 123 potential customers deposited a total of $1,484,250 into the corporate bank account. ASIC’s investigation remains ongoing.
Protecting consumers
In 2021, ASIC commenced civil penalty proceedings against financial services companies for alleged breaches of the laws it administers. Key cases include:
- ASIC commenced civil penalty proceedings against AMP for allegedly charging life insurance premiums and advice fees to more than 2,000 customers despite being notified of their death.
- ASIC commenced civil penalty proceedings against Westpac for allegedly mis-selling consumer credit insurance with credit cards, and other credit facilities, to customers who had not agreed to buy those policies.
Reforms and new regulatory requirements
New laws will be introduced in October 2021 which will expand breach reporting requirements, and introduce product design and distribution obligations.
Breach reporting reforms
The reforms will clarify and strengthen the existing obligation on AFS licensees to self-report certain breaches of the law to ASIC. The reforms also extend the obligation to credit licensees.
ASIC will release updated regulatory guidance in the third quarter of 2021.
Product design and distribution obligations
Entities will be required to introduce and maintain effective product governance arrangements focused on consumer outcomes.
ASIC and the Australian Prudential Regulation Authority (APRA) recently co-hosted a Superannuation CEO Roundtable. Discussion focused on the design and distribution obligations and APRA’s Member Outcomes obligations – both of which should be considered in tandem.
ASIC states that it will “Continue to address conduct of concern, including working together with APRA as appropriate, with ASIC’s particular focus being poor conduct affecting outcomes for consumers”.
Unfair contract terms protections
Unfair contract terms protections apply to insurance contracts that are entered into or renewed on or after 5 April 2021.
ASIC states that “We will continue to monitor insurance contracts for unfair terms. Where we are concerned about non-compliance and consumer harm, we will consider the range of regulatory powers available to us.”
Conclusion
ASIC has demonstrated that it is taking a hard line against businesses engaging in unethical and unlawful conduct which harms consumers and investors. AFS licensees need to ensure that they are compliant with ever-evolving laws and obligations to avoid potential penalties and disqualification.
