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Key areas of focus for the 12 months forward
9 min learn
On 21 November, on the ASIC Annual Discussion board 2023, ASIC Deputy Chair Sarah Court docket introduced ASIC’s enforcement priorities for 2024. The Deputy Chair additionally addressed ASIC’s regulatory enforcement strategy typically, by reference to latest criticisms levelled on the regulator.
Areas of focus embody:
- compliance with design and distribution obligations (DDO) and combatting greenwashing
- the superannuation and insurance coverage industries, with enforcement sources to be directed in the direction of addressing:
- superannuation member companies failures and misconduct ensuing within the systematic erosion of superannuation balances
- insurer claims dealing with failures
- given the present financial local weather and rising value of residing, enforcement motion geared toward defending weak shoppers.
ASIC’s strategy to enforcement
Earlier than saying ASIC’s 2024 enforcement priorities, the Deputy Chair addressed what she described because the ‘appreciable public scrutiny and remark’ that has just lately been directed at ASIC’s strategy to enforcement. Particularly, recommendations that ASIC has not modified its enforcement strategy for the reason that days earlier than the Monetary Companies Royal Fee (when the extremely publicised ‘why not litigate’ strategy was introduced).
The Deputy Chair recognized important actions introduced by ASIC just lately, and stated its enforcement strategy is ‘basically completely different’ to the pre-Monetary Companies Royal Fee days. Particularly, the times when ASIC negotiated outcomes, when it accepted undertakings and when penalties have been ‘comparatively low’.
In distinction, the Deputy Chair stated ASIC’s strategy now’s ‘proactive, strategic and daring’—together with in the best way it units its strategic priorities annually and directs its restricted sources to pursuing them, significantly towards what she known as the ‘huge finish of city’ and even the place that entails testing the regulation.
Points in focus
Compliance with DDO stays an enforcement precedence, because it was final 12 months. Following the introduction of recent DDO legal guidelines in late 2021, ASIC has issued over 80 cease orders to stop the distribution of merchandise it thought of to be unfit for each shoppers and traders, or people who have been distributed exterior of their goal markets.
ASIC has additionally commenced 4 civil penalty proceedings alleging breaches of DDO. These have been towards an issuer of a credit score product, a monetary product distributor, a web based funding platform and a supplier of a crypto change.
ASIC has flagged that, so far, it has primarily centered on product design and goal market determinations. On this subsequent section of compliance work it should deal with distribution, and particularly on the cheap steps taken by issuers to make sure the merchandise are acceptable for his or her goal markets.
Sustainable finance and greenwashing additionally stay an enforcement precedence for ASIC. The Deputy Commissioner stated ASIC has been described as ‘world-leading’ on this enforcement space, having issued steering, carried out in depth surveillance and instituted proceedings within the Federal Court docket towards superannuation and investments firms. Karen Chester, ASIC Deputy Chair, additionally spoke in regards to the intersection between greenwashing, incoming mandatory climate reporting and the Authorities-backed Australian sustainable finance taxonomy. The Deputy Chair described these initiatives because the ‘antidote’ to greenwashing. However, the Deputy Chair made clear that ASIC sees its function as extending to taking greenwashing enforcement motion the place mandatory.
To this finish, ASIC has flagged that, going ahead, its enforcement focus will likely be on:
- net-zero statements and targets made with no cheap foundation
- use of terminology with no cheap foundation, similar to clear, inexperienced, or carbon impartial
- obscure phrases or inaccurate labelling in sustainability-related funds.
This means that we will count on a broader focus as compared with ASIC’s greenwashing enforcement historical past so far, which has primarily centered on alleged misrepresentations as to the scope and nature of funding screens (ie the follow of choosing investments based mostly on ESG-related standards).
Towards the context of sustained value of residing stress, the safety of weak shoppers has additionally remained a precedence since final 12 months. ASIC’s particular focus this 12 months will likely be on predatory lending and high-cost credit score, misconduct regarding used automobile financing to weak shoppers (together with by brokers, automobile sellers and finance firms) and compliance with monetary hardship obligations.
This focus space was the topic of ASIC’s latest successes within the Federal and Excessive Courts in enforcement proceedings towards credit score suppliers Cigno, BHF Options and BSF Options.
A lot of ASIC’s enforcement priorities are directed to shopper and retail markets. However, the Deputy Chair stated ASIC will keep its deal with the markets themselves and misconduct damaging market integrity. That features a deal with insider buying and selling, steady disclosure breaches and market manipulation as enduring priorities.
In his opening assertion to the Senate Inquiry into ASIC investigation and enforcement on 23 June 2023, ASIC Chair Joe Longo defended ASIC’s enforcement file towards insider buying and selling, referring to the 33 investigations, 22 prices and 6 legal convictions it has achieved up to now three years.
ASIC has additionally launched a brand new 2024 enforcement precedence of technological and operational resilience for market operators and members, in step with the brand new Market Integrity Guidelines.
Industries in focus
Off the again of its comparatively latest expanded civil penalty role in superannuation, ASIC will retain misconduct within the superannuation sector as an enforcement precedence for 2024.
Latest ASIC enforcement motion on this space has included a variety of proceedings towards superannuation funds alleging insufficient insurance policies and procedures, in addition to failures to adjust to the fund’s personal inside dispute decision necessities. For the following 12 months, ASIC will deal with member companies failures and misconduct ensuing within the systematic erosion of superannuation balances.
This enforcement precedence aligns with ASIC’s adoption of retirement outcomes as certainly one of its 4 key strategic priorities in its 2023-2024 Corporate Plan, during which ASIC acknowledged the superannuation sector’s significance, given Australia’s ageing inhabitants.
Insurance coverage may also stay an enforcement precedence for 2024. As we reported in our Insurance Regulatory Risk Report, throughout 2023, ASIC maintained an energetic enforcement agenda towards insurers, together with by commencing 4 civil penalty proceedings towards insurers, alleging false and deceptive conduct, breaches of AFS licensee obligations and breaches of the expanded unfair contract phrases regime.
In 2024, following a proliferation of insurance coverage claims arising from pure disasters, ASIC’s enforcement precedence for insurers is claims dealing with. This represents a shift from ASIC’s 2023 enforcement deal with failures by suppliers of normal insurance coverage. On the ASIC Annual Discussion board, the Deputy Chair additionally indicated ASIC would deal with poor communication and file protecting and the inappropriate use of exclusions by insurers.
Acknowledging the present financial local weather and that roughly 96% of ASIC-registered firms are small companies, ASIC has included defending small companies as a brand new enforcement precedence in 2024.
On this space, ASIC’s enforcement focus will likely be on:
- misconduct by monetary companies suppliers and credit score suppliers of their dealings with small enterprise, similar to unfair contract phrases, illegal credit score exercise and insurance coverage claims dealing with
- misconduct associated to firm failures, within the context of failed firms typically owing in depth liabilities to small companies. ASIC said it should proceed to disqualify administrators concerned in constant failures and prosecute them for breaches of their duties, concealing belongings and failures to help liquidators.
Gatekeepers similar to auditors, credit score and monetary companies licensees and registered liquidators have additionally been known as out in ASIC’s 2024 enforcement priorities given their ‘important function to play in stopping company misconduct’. The Deputy Chair described these gatekeepers as being in a ‘distinctive place to establish and restrict misconduct within the entities they advise’. As such, ASIC will deal with situations the place gatekeepers don’t meet the requisite requirements.
Enduring priorities
Whereas ASIC’s particular enforcement priorities change from 12 months to 12 months to replicate the shifting regulatory panorama, it maintains enduring priorities. Presently they embody:
- misconduct that damages market integrity
- misconduct impacting First Nations individuals
- misconduct involving a excessive danger of shopper hurt
- systemic compliance failures by giant monetary establishments
- new or rising conduct danger inside the monetary system
- governance and administrators’ responsibility failure.
ASIC has solely added one new enduring enforcement precedence since 2023, Governance and administrators’ duties failures. That is in line with the overall shift within the regulatory panorama over latest years to deal with governance, techniques, controls and government accountability (eg the introduction of the Monetary Accountability Regime and, earlier than that, the BEAR).
What’s now not an enforcement precedence?
Whereas most of the enforcement priorities stay the identical or have barely shifted focus, there are a small quantity from 2023 that ASIC has faraway from its headline enforcement priorities. These are:
- misconduct involving high-risk merchandise, together with crypto belongings
- combating and disrupting funding scams
- deceptive and misleading conduct regarding funding merchandise
- misconduct that entails misinformation by means of social media
- manipulation within the vitality and commodities derivatives markets.
Whereas these points weren’t particularly recognized as enforcement priorities, we all know that a variety of these areas stay a strategic precedence for ASIC. In ASIC’s Company Plan for 2023-27, ASIC confirmed it should deal with six core strategic initiatives, together with with respect to:
- scams, which entails working with different businesses to coordinate disruption methods and taking focused enforcement motion;
- crypto-assets, supporting the event of an efficient regulatory framework and elevating public consciousness of the dangers inherent in crypto-assets and decentralised finance; and
- DDO, with a deal with focused danger based mostly surveillance.
As well as, many of those points fall inside different areas that have been recognized as enforcement focuses for ASIC (eg, misconduct that damages market integrity or has a excessive danger of shopper hurt, and safety of weak shoppers).
What’s subsequent?
ASIC has made it clear that it’s going to use its 2024 enforcement priorities to carry itself accountable as a regulator that does what it says it should do.
For companies working within the areas of focus, these priorities are a forewarning to evaluate relevant insurance policies, techniques and controls repeatedly, with a purpose to minimise the danger of being the goal of regulatory consideration.