ASIC to prioritise DDO and sustainable finance

The corporate regulator confirmed four key areas it will look to address, which are as follows:

• Product design and distribution (by driving compliance with new requirements around product design, distribution and marketing – particularly around Target Market Determinations)
• Sustainable finance (by “proactive supervision and enforcement” of governance, transparency and disclosure standards in relation to sustainable finance)
• Retirement decision-making (with a focus on superannuation products, managed investments and financial advice)
• Technology risks (with a focus on the impacts of technology in financial markets and services, driving good cyber risk and operational resilience practices, and addressing digitally enabled misconduct, including scams). 

ASIC said a number of “core strategic projects” will support the priorities focused on sustainable finance practices, crypto assets, scams, cyber and operational resilience, breach reporting, design and distribution obligations and, subject to the passage of legislation, the Financial Accountability Regime. 

‘Focus on sectors where consumers are at the greatest risk of harm’

Speaking to the Committee for Economic Development of Australia (CEDA) on Tuesday (23 August), ASIC chair Joe Longo elaborated: “In the months ahead, you can expect ASIC to focus on sectors where consumers are at the greatest risk of harm.

“We have targeted surveillance action underway to identify and disrupt poor conduct in relation to high-risk and complex products, such as over-the-counter (OTC) derivatives and crypto.

“We are reviewing product governance arrangements in the small-amount credit and buy now pay later sectors. We’re looking at how TMDs were developed, including the data, metrics and other key considerations that underpinned these important public documents.

“We’re also conducting a surveillance of a sample of TMDs in the superannuation and managed funds sectors, and engaging with major supervised institutions on how they are implementing DDO. Where our surveillance work identifies poor consumer outcomes, we will disrupt the sale of the products using stop orders or take court-based enforcement action.”

Mr Longo outlined that ASIC would, moving forward, “look closely at the way firms collect, assess and respond to data about consumer outcomes from their products”.

“It’s critical that firms respond to poor outcomes that they identify by making the necessary changes to either their products or their product governance arrangements,” he said, noting that the regulator had recently taken action against Responsible Entity Services (RES) and placed an interim stop order on them after finding that its TMD for one of its products “didn’t meet the needs of the investors in the original target market”.

“These obligations require firms to be proactive. It’s not a case of set and forget,” Mr Longo said.

“Ultimately, we want to see the long-term benefits of DDO being realised. 

“Strong and robust compliance with DDO will support fairer outcomes for consumers and a stronger financial system for all Australians.”

Looking at “sustainable finance”, the ASIC chair flagged that the regulator would be “testing ‘green’ investment offers and targeting false claims by firms” to ensure that labels or headline statements about a product’s green credentials are not “misleading”.

“If a product issuer promotes an investment opportunity and states they will ‘take sustainability into account’ as part of their strategy, but doesn’t explain how, this simply isn’t enough. How is this going to help investors understand the product’s investment strategy?” he said.

“Firms are expected to explain how they will ‘take sustainability into account’, using specific and clear language. We are actively monitoring the market, looking for dubious claims (also known as ‘greenwashing’).

“Serious breaches will fall foul of the misleading and deceptive disclosure provisions in the Corporations Act, and we will take enforcement action.”

The chair also told the committee that ASIC continued to be concerned that investors in cryptocurrency did not generally view it to be a risky asset class, and would be supporting the development of an effective regulatory framework and greater regulatory clarity for this class of products.

And the ASIC chair also noted the rise in investment scams impacting Australian borrowers – including those purchasing homes.

“Australians lost a record amount to scams in 2021 – more than $2 billion dollars. Investment scams – our focus – were the highest loss category, at more than $700 million. Those losses represent great harm,” he said.

“Think of young parents caught up in a payment redirection scam as they attempt to purchase their first home.

“Think of the distress felt by an investor discovering that an email offering corporate bonds – seemingly from their own bank – had in fact been false, and their savings are gone.

“The size and scale of the problem is immense. It can feel like a game of cat and mouse as we pursue scammers and try to get ahead of the increasingly sophisticated techniques they use.

“Our strategy is to disrupt their operation, using innovative, data-driven approaches to drive early intervention and, where possible, prevent loss to consumers in the first place.”

[Related: ASIC seeks ‘common-sense solutions’ to breach reporting]