ASIC could soon have the power to direct brokers in the conduct of their business where necessary to address or prevent compliance failures, if recommended proposals are backed through a new consultation.
In its final report, the Financial System (Murray) Inquiry recommended that ASIC should have more power to impose conditions requiring licensees to address concerns about “serious or systemic non-compliance with licence obligations”.
According to the Enforcement Review Taskforce, ASIC’s existing powers to require licensees to adopt internal systems or to restrict their activities have three shortcomings. These are:
- The resources and procedural requirements necessary to impose additional conditions, or to suspend or cancel a licence, which can result in delay between concerns arising and ASIC achieving a protective outcome. The review from the taskforce outlined that this can leave financial consumers “at risk in the interim period as surveillance and hearings take place”.
- The “significant time, resources and costs” in investigating, preparing and applying to a court for an injunction. The taskforce explained that in urgent matters involving a licensee, there is “utility in providing ASIC with an efficient and quick mechanism to require a licensee put in place or modify internal systems or restrict its activities in appropriate ways to address risks to consumers”.
- Lastly, the fact that enforceable undertakings must be agreed to by a licensee and are generally negotiated as an alternative to ASIC exercising its administrative powers or initiating court proceedings. This requires acknowledgment by the licensee of ASIC’s concerns. The outcome also depends on the strength of the evidence available to support ASIC’s concerns and the nature of the alternative remedies that could be pursued by ASIC.
The taskforce went on to explain that particular difficulties arise where a licensee has taken some steps to rectify identified compliance concerns, but ASIC “remains concerned that those steps are not sufficient to ensure that there will not be further breaches by the licensee of its obligations or additional measures are required to ensure that the impact on clients or former clients is identified and, where necessary, remediated”.
It gave the example of a licensee or credit representative not establishing an “appropriate remediation program to assess whether compensation is payable to consumers” when a breach has occurred.
As such, a consultation has now launched on granting ASIC the power to “require compliance with AFS or credit licence obligations in real time, and that the regulator should be given powers to direct licensees to take or refrain from taking actions where appropriate for this purpose”.
The reforms, as listed below, are aimed at filling a gap in the existing licensing regimes:
- Giving ASIC the power to vary, suspend or cancel the licence if it can establish the licensee has breached the law, and the breach justifies this action; direct financial services or credit licensees in the conduct of their business (including ceasing to accept new clients or requiring an audit of records) where necessary to address or prevent compliance failures; and that these powers would be triggered where a licensee “has, is or will contravene AFS or credit licensing requirements (including relevant laws)”.
Finally, the consultation proposes that ASIC should be able to apply to a court to enforce the direction and take administrative action if an AFS or credit licensee does not comply with directions.
Speaking of the proposals, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, said that the government is committed to ensuring that ASIC can respond effectively to address compliance failures within licensed financial services and credit businesses.
“The proposed directions power would allow ASIC to take steps to protect consumers by preventing harm before the damage is done,” Minister O’Dwyer said.
Interested stakeholders are invited to comment on the proposals in ASIC’s Directions Power paper before 20 November 2017.
The final report from the ASIC Enforcement Review Taskforce will be released at the end of this month.