ASIC’s new direction

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Written by Tim Bednall.

Following the appointment of new Chair Joe Longo, ASIC has released two important documents that signal a new direction for the corporate regulator.

The first document is ASIC's "Statement of Intent". The statement responds to the Australian Government's "Statement of Expectations" released by the Federal Treasurer under the Public Governance, Performance and Accountability Act.

The Statement of Intent confirms ASIC's intention to contribute to the Governments economic goals and the COVID recovery by focussing on the fair and efficient operation of capital markets and the corporate sector, improving ASIC's performance, minimising costs and burdens of regulatory requirements, promoting innovation, competition and the digital economy, expanding the use of data and digital technology to inform markets and consumers, achieving faster and better regulatory outcomes, and facilitating novel business models and transactions.

These are admirable goals, and it is to be hoped that ASIC makes good progress in achieving these objectives over the next 5 years, especially in areas where electronic communications can improve efficiency and reduce costs. These goals might also be achieved by taking a more pragmatic approach to proposed new regulatory requirements, only supporting those that address a material harm, unlike many new laws introduced or proposed this year that impose unclear, costly, impractical and self-incriminating burdens on the financial services sector in particular   

The Statement of intent also flags a commitment to work with Government and co-operate with other regulators, and clarifies the governance of ASIC, with the Chair, as the Accountable Authority, having sole executive management responsibility, all of which is welcome

ASIC's approach to enforcement is restated to use the full suite of regulatory tools available to it, focussing enforcement action on areas of greatest harm. This signals a clear move away from the "why not litigate" approach that followed the Financial Services Royal Commission, with mixed success, unnecessary delays, and limited benefits for those most affected by misconduct.

The second document is ASIC's Corporate Plan 2021-25. The five-year Corporate Plan is updated annually, and so material change is significant.

The most noteworthy change, consistent with the Statement of Intent, is that the phrase "why not litigate", which appeared 5 times in the 2020 plan including the chair's message, has been expunged from the Plan altogether. Instead, a more balanced and measured approach to the use of regulatory powers is foreshadowed in the new Chair's message:

"ASIC will continue to be a strong and targeted law enforcement agency. We will remain an active litigator against misconduct. We will use our full suite of tools and powers to address wrongdoing. Our enforcement actions will prioritise areas of greatest harm and the protection of vulnerable consumers and investors."

Participants in capital markets and the corporate sector will welcome this change of focus. The use of tools such as enforceable undertakings, which had almost ceased altogether over the last three years, can achieve outcomes that are not possible from litigation. These include efficient and timely disposal of matters, efficient remediation and compensation for those affected by misconduct, and a constructive rather than antagonistic relationship with the regulated community. 

ASIC has a long list of priority actions in 2021-22, divided into general types of objectives. The first objective is changing behaviours. The first sub-section is headed "cross sector" but all 11 items in that sub-section (listed below) relate to the financial services sector. There is no mention of issues such as cyber-security, environmental issues or insolvencies arising from COVID-19 lockdowns, that are actually cross-sector, although cyber-crimes and environmental issues do get a mention in the Misconduct and Enforcement objectives and the Innovative Development objectives.  

The 11 "cross sector" priority actions areas for "changing behaviours" are:

  1. The introduction of the Financial Accountability Regime
  2. Monitoring compliance with new financial product "design and distribution obligations" (DDO)
  3. Handling and prioritising information received under new breach reporting obligations
  4. Monitoring compliance with new anti-hawking laws
  5. Monitoring internal dispute resolution processes in financial institutions
  6. Dedicated supervision of large financial institutions
  7. Whistle-blower programs for regulated entities
  8. Social media advice and influence on investment decisions
  9. Life insurance framework review
  10. Remediation policies
  11. Enforceable financial services sector codes.

Other priority action sub-sections are also focused on particular financial services sectors: financial advisers, investment managers, superannuation, credit and banking, and insurance. It is not until the final two priority action sub-sections that ASIC includes actions that are not exclusively related to financial services: registered liquidators and market supervision.

The second objective is action against misconduct, including enforcement. The cross-sector priorities here are much more broadly based, although the particular priority action areas are also mainly in financial services.

The third objective includes welcome priorities for innovative development of the financial system, including cyber-resilience, climate risk governance and crypto assets.

Finally the Plan includes measures for strengthening ASIC's capabilities and evaluating performance, in line with the Statement of Intent.

Overall, the Plan presents a welcome step forward in ASIC's thinking and priorities as an independent regulator aligned with the needs of the corporate and investor communities and the Government's economic priorities. The priority action areas have been completely reviewed, focussing on specific issues rather than vague systemic matters, and reducing the understandable focus on COVID issues in the previous plan.

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